Advisory panel set up to review moneylending regulations

By Walter Sim, The Straits Times, 19 Jun 2014

AMID calls for tighter controls on licensed moneylending and complaints of excessive borrowing and exorbitant interest rates, the Law Ministry has brought together an advisory committee to review regulations for the industry and recommend improvements.

Dr Beh Swan Gin, the ministry's Permanent Secretary, said of the 15-member panel's challenge yesterday: "It is not an easy task to maintain the balance between protecting consumers and preserving their access to credit."

The committee will be looking at restricting the total amount a person can borrow, as well as capping interest rates.

Existing regulations limit only the sum a person can borrow from each moneylender. And these caps apply only to borrowers who earn less than $120,000 a year and seek unsecured credit - which is not backed up by property or other collateral.

Interest rate caps apply only to borrowers earning less than $30,000 a year.

The Straits Times understands that the authorities are looking to set up a Moneylenders Credit Bureau, which moneylenders must use to run compulsory credit checks on potential borrowers.

The committee will also look into restricting fees charged by moneylenders, who may now impose charges each time a loan or interest payment arrives late, or even when the money is returned early.

The authorities have stopped issuing new licences to moneylenders since 2012. That year, there were more than 200 licensed moneylenders here.

Although moneylenders give out less than 1 per cent of consumer loans, several MPs have called for tougher regulations in recent months, highlighting concerns over excessive borrowing and punitive interest rates.

In March, Pasir Ris-Punggol GRC MP Zainal Sapari cited the example of a security guard who had to repay $2,240, five weeks after taking out a loan of $1,600 - an interest rate of 40 per cent.

Yesterday, he said he hopes the committee will also look into restricting the number of moneylenders operating in any one area, and at better ways to educate borrowers.

The committee, which starts work next Wednesday, is chaired by Mr Manu Bhaskaran, director of strategic and policy advisory firm Centennial Group International, and vice-president of the Economics Society of Singapore.

It will submit its recommendations to the ministry by the end of the year.

Besides academics and representatives from the moneylending industry, such as Moneylenders Association of Singapore president David Poh, the group also comprises voices from voluntary welfare organisations that help distressed borrowers.

These include Credit Counselling Singapore president Kuo How Nam, and Mr Christopher Chuah, president of One Hope Centre's executive committee.

The debt trap in our midst
By Jacqueline Woo, My Paper, 19 Jun 2014

STEPS are being taken to address one of Singapore's darkest and most painful open secrets: Of how some people, strapped financially and desperate for help, borrow from moneylenders - only to find themselves walking into a debt trap.

These are registered moneylenders, not loan sharks, that lead to this dark hole.

A new panel will now study issues like capping interest rates and loan amounts and restricting fees charged by moneylenders.

The cases that have emerged and the numbers that surround them paint a troubling picture.

Borrowers who earn less than $30,000 a year can be charged an interest rate of 13 to 20 per cent each month, while those earning more have to negotiate a rate with the lender - not including late payment charges.

And effective interest rates can even amount to as much as 159,000 per cent a year, according to Member of Parliament (MP) Zainal Sapari.

He was among the MPs who called for more measures to regulate the moneylending sector during the Budget debate in March.

Mr Zainal cited the example of a security guard who took out a loan of $1,600 and ended up paying an extra 40 per cent over five weeks in interest alone. In addition, every late payment drew a charge of $800.

People eventually end up paying more than they had borrowed, he said.

"And it doesn't make sense because they are usually those who are already facing financial problems, but their debt just keeps perpetuating."

Worse still, Mr Zainal pointed out, some moneylenders require borrowers to pay up on a weekly or fortnightly basis once they default on their monthly instalments.

"But many borrowers eventually continue to default on their weekly payments since their salaries come in at the end of each month, and they end up incurring the high late payment charges."

Dick Lum, executive director of One Hope Centre, which counsels gambling addicts, told My Paper that many of those in debt also take up loans across 10 to 20 moneylenders.

"Some also open several accounts at once with one moneylender, so they can borrow more," he noted. "This continuous borrowing then just spirals out of control."

One way out of this practice would be to have a shared database that could show just how much a person has borrowed from different moneylenders, said David Poh, president of the Moneylenders Association of Singapore, who sits on the committee.

"Having loans on record would make processes more transparent, and also help to make the industry healthier," he said.

Capping the aggregate amount of moneylending loans taken out by each borrower is one of the issues the committee will look at.

But he cautioned against not edging the licensed moneylenders out of business. "Otherwise, the illegal moneylenders will come in to fill the void," said Mr Poh.

Nominated MP Tan Su Shan told My Paper that the uneven playing field within the industry was a concern. Consumers should be able to avail themselves of credit restructuring help, should they need it, she said.

"Having clearer guidelines for the moneylending industry will also keep interest rates in check and protect consumers from incurring unnecessary fees," said Ms Tan.

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