Credit firms in Heartland: Safeguards to protect borrowers

WE THANK Mrs Marietta Koh for her feedback ("Easy access to credit bodes ill for heartlanders"; Tuesday).

Licensed moneylenders serve the purpose of making credit available to those with genuine financial needs but who do not meet the criteria to take out a bank loan.

We agree with the general concern about not making credit too accessible. However, excessive controls may drive those in financial hardship to seek loans from unlicensed moneylenders or other illegal sources.

To protect borrowers, there are several safeguards, including interest rate caps for those with an annual income below $30,000, borrowing caps for unsecured loans and a minimum age of 18 years old for borrowers.

The current licensing framework also requires moneylenders to meet several criteria before their licences are granted. These include ensuring that they are of good character to manage the business, and the placement of a security deposit to ensure the proper conduct of the business.

Moneylenders found to have committed offences may have their licences suspended, not renewed or revoked by the Registry of Moneylenders.

The Ministry of Law is currently considering additional measures to strengthen the moneylenders' regulatory regime and to complement the Monetary Authority of Singapore's 12-month income limit on unsecured borrowings from financial institutions. There has also been a moratorium on new licences since 2012.

Praveen Randhawa (Ms)
Deputy Director
Corporate Communications Division
Ministry of Law
ST Forum, 10 Jan 2014

Easy access to credit bodes ill for heartlanders

I READ yesterday's article ("More moneylenders moving into heartland") with unease.

While giving the target customer base easy access to credit may be a strategic business move for licensed moneylenders, it bodes ill for residents in HDB estates who will bear the social costs.

As moneylenders begin to proliferate and cluster together, more people may be tempted to borrow money from them. The main draw is that their lending criteria are less stringent and less onerous than those of banks.

Customers are also more inclined to try their luck at securing loans, especially when their previous applications have been rejected and there is now a pool of moneylenders in close proximity for them to pick from.

Some may even come to believe that with the growing prominence of such credit firms within their neighbourhoods, it is perfectly acceptable to borrow money in this manner.

Of this group, some may be impressionable young people who may not be financially savvy and opt for satisfying their immediate wants the easy way instead of saving up for them.

Over time, they will find themselves mired in debt.

I urge the authorities to step in and regulate the industry before the more vulnerable fall victim to debt.

One way is perhaps to make it mandatory for credit firms to make their penalties for defaults on payment more transparent and conspicuous to potential customers, such as by advertising these on their shop fronts.

Hopefully, reminding people of the highly punitive late-payment charges levied by such companies would go some way towards deterring borrowing.

Marietta Koh (Mrs)

ST Forum, 7 Jan 2014

More moneylenders moving into heartland
Just in Toa Payoh town centre, 16 credit firms have set up shop
By Melody Zaccheus And Janice Tai, The Straits Times, 6 Jan 2014

LICENSED moneylenders are increasingly targeting heartland areas such as Toa Payoh, Ang Mo Kio and Tampines, raising concerns among some about the availability of easy credit.

In Toa Payoh, for instance, 16 credit companies have set up shop in the town centre, replacing apparel shops and hair salons, among others. There was just two such licensed moneylenders in the entire estate in 2009.

Five have set up in Tampines and nine in Ang Mo Kio since 2009, spreading out from areas like Chinatown and Beach Road which used to be their main focus.

"Heartland areas have high human traffic," said Mr John Lim, 36, the manager of moneylending company Symbolic at Block 183, Toa Payoh Central. "Eighty per cent of our borrowers are living in HDB flats and are not based in places like Tanjong Pagar."

Operators said while they face stiff competition, clustering together makes it more convenient for customers. "The location is central and people come from all over Singapore as they know we are all based here," said a loan officer, who wanted to be known only as Louis T., from Gold Allianze at Block 185, Toa Payoh Central.

Sound technician Mohd Aris travelled from his Jurong home to Toa Payoh last Thursday to borrow $300. "There are many moneylenders in the area, so if the criteria of one is strict I can go to another," said the 25-year-old, who was rejected by 10 moneylenders before he got his cash.

Such clusters also work in the favour of customers who borrow from one moneylender to pay off debts at another.

The Straits Times understands that most of the credit companies in Toa Payoh town centre rent their premises from tenants who sublet their shop space, and not directly from the Housing Board.

There are now 206 licensed moneylenders in Singapore, compared with 173 five years ago.

The Registry of Moneylenders, which regulates the industry here, said there is no restriction on the number of licensees in a given area, "as the licensing criteria are currently not based on geographical quotas".

But the registry is in the midst of conducting a review of the moneylenders regulatory regime, and has suspended the processing of new licences in the interim. The review aims to enhance the professionalism of the moneylending industry and strengthen its governance. Suggestions the Ministry of Law has received include introducing paid-up capital, similar to requirements for banks and finance companies.

Mr Lim Cheng Boon of Credit Counselling Singapore said the growing number of moneylenders in the heartland is worrying. Especially at risk are low-income earners with annual incomes of less than $30,000. He believes they are more likely to approach such establishments as they do not meet the income criteria of banks.

Subordinate Courts statistics show that civil cases relating to moneylending more than doubled in 2012, with 260 cases compared with 96 in 2011. There were 102 such civil cases in the first half of last year.

Bishan-Toa Payoh GRC MP Hri Kumar Nair said restricting the number of moneylenders in any given area will not address such "perceived social harm". "Desperate people in need of money will go to wherever the moneylenders are," he added.

Private tutor Jane Soh, 36, who used to live in Toa Payoh and still frequents it, said: "It is only healthy to ensure a better distribution of such businesses to safeguard the interest of residents."

Easy credit - with limits
By Janice Tai And Melody Zaccheus, The Straits Times, 6 Jan 2014

CREDIT firms in Toa Payoh operate behind frosted glass fronts covered with large banners to give customers privacy. The banners pledge easy credit in a jiffy and last Thursday, they were still serving customers past their 8pm closing time.

Although moneylenders can legally offer unsecured loans of four times a borrower's monthly income - if they earn $30,000 to $120,000 a year - most offered conservative sums.

When reporters cited a monthly pay of $3,000, five loan officers offered to lend half that sum, saying low- income earners are a bigger credit risk. But loans could be approved right away.

Documents such as an identity card and SingPass log-in details are needed to retrieve income statements online.

For borrowers earning under $30,000, the rate lenders can charge is legally capped at an effective interest rate of 13 per cent for secured loans and 20 per cent for unsecured loans.

But borrowers need to be careful of other charges, cautioned Mr Lim Cheng Boon of Credit Counselling Singapore. "Debt can escalate in a short period due to late payment charges."

For example, if a borrower opts for weekly repayment instalments and defaults on payment for one month, he will face four late payment charges.

'Robust' regime here against dirty money
But study says controls in areas like pawnbroking need stepping up
By Yasmine Yahya, The Straits Times, 11 Jan 2014

A STUDY has found that Singapore has a robust regime to combat money laundering and terrorist financing. But it warns that controls over such risks involving pawnbrokers, money changers and remittance agents need beefing up.

The two-year national risk assessment led by the Ministry of Home Affairs, Ministry of Finance and Monetary Authority of Singapore (MAS) also highlighted new areas such as virtual currencies for further study.

Overall, Singapore was found to have "strong laws, tough enforcement and efficient prosecution", the study noted. Banks and casinos were deemed to be at high risk from such criminal activity, but the study also found them to have the most developed controls.

However, the study found scope for improvement in banking - for example, in the area of trade finance, where monitoring and policies could be stepped up.

DBS Bank's head of consumer banking and wealth management, Ms Tan Su Shan, noted that as a financial centre, Singapore has to abide by international standards and even lead the way in setting some of its own. "This puts the city in good stead to continue to grow as a robust, sustainable financial hub," she said.

Controls at remittance agents and money changers were less robust, the study found. "Large amounts of physical cash, high numbers of walk-in, one-off and overseas customers, as well as voluminous transactions contribute to higher inherent money laundering and terrorist financing risks."

Pawnbrokers are another risk area, as transactions are cash-based and there are no explicit controls against money laundering or terrorist financing, the study found.

The Insolvency and Public Trustee's Office is considering introducing such measures into the Pawnbrokers Act this year.

Mr Kwok Wui San, the financial services regulations leader of PwC Singapore, said it is important to hit the right balance when regulating small firms like money changers and pawnbrokers. "Regulation is good as it raises standards and is a first-level check that only good people of integrity are in the business," he said.

Corporate service providers, which include law and accounting firms, were also seen as a potential problem area. While they generally do not handle large amounts of cash, the firms they help to incorporate may be abused by criminals to set up opaque structures for illicit purposes.

The Accounting and Corporate Regulatory Authority has proposed legislation to regulate the sector this year.

The increased use of online payments has made Internet-based transaction and fund deposit companies such as PayPal and Alipay a potentially high-risk area.

Global standards are still being developed for such firms, but MAS said it will continue to monitor new and emerging firms in this space and spot risks.

The Government has also identified areas for further study, including virtual currencies, dealers of precious stones and metals and the Singapore Freeport.

KPMG Singapore partner Lem Chin Kok noted that global regulators have not yet developed a consistent approach to virtual currencies like the bitcoin. "With (this) industry expected to continue to grow, guidance from supra-national bodies like the Financial Action Taskforce to help shape the regulatory landscape in a more consistent way is necessary."