On October 1, 2015, new regulations took effect for licensed non-bank moneylenders in Singapore regarding interest rates, unfair lending practices, unfair contracts and fees. Amongst these regulations were:
- an upfront administrative fee of not more than 10 per cent of the loan principle, when there was previously no stipulated upfront administrative fee;
- a cap of $60 for late fees per month, and
- a total borrowing cost of not more than 100 per cent of the original loan.
These regulations were put in place to prevent debts from spiralling, and accordingly prevent abuse at the hands of moneylenders.
Exploiting of Loopholes by Moneylenders
However, despite the new regulations in place, moneylenders have attempted to exploit loopholes to circumvent these new rules. According to debt counsellors, an example would be the issuing of weekly loans, in which borrowers who fail to repay the debt have to pay a 10 per cent upfront administrative fee to “re-contract”. This, combined with late payment fees, results in a monthly interest rate of more than 40 per cent – which is almost twice the rate moneylenders used to charge before the caps implemented by the new regulations.
New Regulations to Tackle Abuses
This has resulted in the Registry of Moneylenders setting out even more new regulations to tackle such new abuses. These new regulations were issued to licensed moneylenders through a set of Directions on 26 January 2016 and were effective immediately. These regulations were set out to tackle three specific abuses:
- Misinforming borrowers that they can be granted only weekly loans under a “new law”;
- Split loans, which involves splitting a single loan into different segments, such that a late fee can be imposed on each segment that borrowers cannot repay on time; and
- Short-term loans, which are loans subsisting for less than one month, and forces borrowers to repeatedly pay an administrative fee to re-finance the loan, as mentioned above.
Currently, the Moneylenders Act has already made it compulsory for licensed moneylenders to inform borrowers of the terms and conditions of the loans, which includes information on how interest and fees are calculated and when they will be charged. Any licensed moneylender that fails to do so will be guilty of an offence, and shall be liable on conviction to a fine not exceeding $20,000 or to imprisonment for a term not exceeding 6 months, or both.
Moneylenders to give borrower cautionary statement
On top of the Moneylenders Act, the new regulations state that all licensed moneylenders will also have to give borrowers a cautionary statement in writing before any loan can be given. The cautionary statement warns the borrower of the abusive conduct carried out by moneylenders, stating specifically how short-term loans and split loans are forms of undesirable conduct. The cautionary statement further gives the borrower details regarding where to lodge a formal complaint if the licensed moneylender has given such a loan. The borrower then has to sign the cautionary statement to acknowledge that he has received and understood it.
The cautionary statement appears to be fairly effective in tackling the heart of the problem, which is that of tackling the information asymmetry which borrowers experience by informing them of the prevalent abuses in the system. However, whether licensed moneylenders will actually give such cautionary statements to borrowers remains unclear, and perhaps more can be done to ensure that licensed moneylenders will actually implement such regulations. For example, it could be possible to stipulate that the content of these cautionary statements be put up in the form of posters at the counters of licensed moneylenders, in full view of potential borrowers.
The Registry of Moneylenders also emphasised in the Directions that licensed moneylenders must stop offering loans to borrowers who appear unlikely to be able to keep up with repayment plans and must thus incur numerous late payment or administrative fees. However, it is unclear how effective such a warning might be. Nonetheless, the Registry of Moneylenders has stated that licensed moneylenders who are found to be in breach of the Directions given will be investigated and dealt with accordingly.
Recovery of payments made to moneylenders
If the interest charged by the moneylender is excessive and the transaction is unconscionable or substantially unfair, the borrower can apply to court to ask for relief. According to section 23 of the Moneylenders Act, the court can re-open the transaction and order the moneylender to repay the excess to the borrower, among other remedies. Enquire with our debt recovery lawyers to get a quotation for doing so.