Changes proposed for licensed moneylending

Recommendations include 4% per month interest rate cap, loan limits
By Joyce Lim, The Straits Times, 4 Nov 2014

AN ADVISORY committee has proposed some major changes in the regulation of the licensed moneylending industry, including an interest rate cap of 4 per cent per month and a "reducing balance" basis for loan repayments.

The committee announced its recommendations at a conference yesterday, eliciting strenuous objections from moneylenders over the low interest rate. It also suggested late-payment interest be capped at the same rate of 4 per cent, and that no other fees be allowed to be imposed on borrowers.

The 15-member panel, initiated by the Law Ministry in June, also recommended limiting the total amount a person can borrow from multiple lenders to four times the borrower's monthly income, as well as capping loans at $3,000 for those who earn less than $20,000 a year.

Chaired by Mr Manu Bhaskaran, director of Centennial Group International, a policy advisory group based in Washington, DC, and adjunct senior research fellow at the Institute of Policy Studies (IPS), the committee made its five draft recommendations at the IPS conference on moneylending.

It requested feedback from conference participants, who comprised moneylenders, grassroots leaders and representatives from voluntary welfare organisations.

Mr David Poh, president of Moneylenders Association of Singapore, told The Straits Times that moneylenders felt the capped 4 per cent interest rate would be "impossible" to work with.

Currently, they charge an interest rate of between 20 and 40 per cent per month.

Law Minister K. Shanmugam, who held a dialogue at the end of the conference, noted the strong feedback over the interest rate and assured participants the committee would review the figure.

"The data that the committee worked on showed that moneylenders should be able to make a decent profit out of it. But I think a fair bit of feedback was given that it's actually very difficult," said Mr Shanmugam, who is also Minister for Foreign Affairs.

He urged moneylenders to provide data on why a 4 per cent rate cap would not work for them.

He said a cap was necessary to protect vulnerable borrowers with little knowledge or leverage.

But moneylenders told The Straits Times they do not cater to such low-income borrowers.

"With the current effective interest rate capped at 20 per cent for a low-income borrower, I would be making very little per month for a loan of $500," said a moneylender, who gave his name only as Mr Ng. "Many of us would turn away such borrowers."

Yesterday, the committee also called for a set of guidelines on acceptable debt-collection practices after noting that harassment of borrowers made up the largest category of complaints received.

It also said the Ministry of Law would consider relaxing current advertising restrictions to allow some advertising in newspapers.

Moneylenders told: Prove 4% interest cap is not tenable
Association calls for data as it lobbies for review of proposed rate ceiling
By Joyce Lim, The Straits Times, 13 Nov 2014

THE Moneylenders' Association of Singapore is giving its members a week to prove that a proposed cap of 4 per cent monthly interest rate on loans is not tenable.

At a meeting attended by more than 100 of about 200 licensed moneylenders here yesterday, the association urged members to submit data to lobby for a higher cap.

An advisory committee on moneylending initiated by the Law Ministry recommended the cap last week to protect borrowers. But the proposal sparked protests from moneylenders, who asked to be allowed to charge more.

Yesterday, the Moneylenders Association called on members to submit data such as monthly revenue, operating costs and opportunity cost, which could be their last drawn pay before starting their moneylending businesses.

They were assured that their firms' names will not be revealed to the ministry, which has called for data to reconsider the figure.

The mood was sombre at the three-hour meeting, as moneylenders worried that they would have to "close shop" if the proposed rate is implemented. One moneylender asked when the new rule will kick in. When the association's committee estimated it would be in 2016 - not as soon as expected - many cheered.

An association committee member recalled how the association had persuaded the authorities to lift a 1.5 per cent cap on the monthly interest rate of unsecured loans in 2009. But this led to some moneylenders charging monthly interest rates of 20 to 40 per cent a month to borrowers with higher income.

"It was a ticking time bomb and a matter of time before the Government knew about it," said the committee member.

"Because (when) the borrowers can't pay, they will go to the authorities and start crying," he said, adding: "I can tell you for sure the good times of 30 per cent per month, 40 per cent, are over. It's finished."

The advisory committee, a 15-member panel, had come up with the 4 per cent figure after studying data on moneylenders' profitability from the Registry of Moneylenders. They also referred to prevailing interest rates charged by moneylenders in jurisdictions like Hong Kong, Australia, Japan and Britain, which range from 1.5 to 4 per cent.

The Straits Times understands that the advisory committee plans to finalise its recommendations next month, after which public consultations will be held.

Mr David Poh, president of the Moneylenders' Association of Singapore, told The Straits Times: "Our members can see that we are fighting hard for the 4 per cent interest rate to be reviewed, based on the real situation we face in Singapore."

4% cap based on moneylenders' data
By Joyce Lim, The Straits Times, 6 Nov 2014

MONEYLENDERS have cried foul at a proposed 4 per cent monthly interest rate cap on loans, but that figure was based on an analysis of data on moneylenders' profitability obtained from the Registry of Moneylenders.

Mr Manu Bhaskaran, chairman of an advisory committee which came up with the figure, said the committee also took reference from prevailing interest rates charged by moneylenders in other jurisdictions, which range from 1.5 per cent to 4 per cent.

"These studies suggested that an interest rate cap of 4 per cent per month should be commercially viable for moneylenders in Singapore," Mr Manu told The Straits Times in an e-mail.

Moneylenders, who are currently free to charge any rate, but tend to charge between 20 per cent and 40 per cent interest per month, have decried the suggestion, saying they need more than that to be viable.

Mr Manu, an adjunct senior research fellow at the Institute of Policy Studies, said representatives on the committee from the Moneylender's Association of Singapore had accepted the proposal to include the 4 per cent cap on interest rates, before it was put forward as a preliminary recommendation at a moneylending conference on Monday.

But the president of the Moneylender's Association of Singapore, Mr David Poh, who was on the 15-member panel, said he was unaware of the figure although he had attended discussions relating to costs of borrowing.

Mr Poh, 60, does not think data from the Registry, which were "merely figures of the amount of loans given and interest charged by moneylenders", would be enough to determine the profitability of moneylenders.

He said a meeting with moneylenders would be held soon to discuss the issue and he would tender a new set of data for the committee to review.

Moneylenders in a tizzy over 4% rate cap proposal
They say figure is not tenable, call for higher monthly rates of 15-20%
By Joyce Lim, The Straits Times, 5 Nov 2014

MONEYLENDERS here admit there is a need to cap loan interest rates instead of the current system where they are free to charge as much as they want, with rates averaging 20 to 40 per cent a month.

But they insist they should be allowed to charge 15 to 20 per cent a month to survive, and that the 4 per cent monthly rate proposed by an advisory committee is simply not tenable.

On Monday, the committee announced five draft recommendations, including the 4 per cent cap on monthly interest rates and limits on loan amounts.

The 15-member panel was formed in June to review the licensed moneylending industry in the light of complaints about high interest rates and excessive borrowing. Its proposals have left many industry players unhappy.

Mr Wayne Ng, 30, assistant secretary of the Moneylender's Association of Singapore, said yesterday that moneylenders were shocked by the proposed 4 per cent figure.

In deriving the number, the panel made comparisons with other jurisdictions in Hong Kong, Australia, Britain and Japan, which charge between 1.5 per cent and 4 per cent per month.

Mr Ng said he made a presentation to the committee two to three months ago in which he spelt out the costs of running a moneylending business. "I don't know how the panel came up with 4 per cent even after we shared our operating costs. Four per cent is totally not feasible."

To illustrate his case, Mr Ng - who operates a moneylending firm in the heartland - said he pays $7,000 a month for office rental. He has three employees and pays them an average salary of $2,000 per month each.

"Assuming I managed to loan $100,000 in one month and everyone pays me back in full within the month, at 4 per cent interest I would make a gross profit of $4,000. That's not even enough to cover my rental," said Mr Ng.

The association's president, Mr David Poh, said he would hold a meeting with all his 140 members in two weeks, where he would consolidate data from them to submit to the committee, for it to review and consider raising the figure.

Mr Poh, 60, who is on the committee, noted that moneylenders typically serve high-risk borrowers who are unable to get loans from banks, and at least 20 per cent of such customers default on their payments.

"It's a high-risk business and moneylenders rely on short-term interest gained from the loans. Hence, they would need to charge a higher interest rate to sustain their businesses," he said.

A moneylender who gave his name only as Mr Lim said some people have labelled them as "licensed loan sharks" as they charge the same interest rates as illegal moneylenders, of between 20 and 40 per cent per month.

"But we do not harass our borrowers like the loan sharks. We also do not change the loan conditions as and when we like," Mr Lim said. "I have heard of cases where the loan shark charges a $1,000 late fee per day."

A hawker who wanted to be known only as Mr Foo said he borrows from licensed moneylenders despite the high interest as banks would not serve him owing to his history of defaulting on payments. "I am embarrassed to borrow from my friends and it would be too risky to borrow from loan sharks," said Mr Foo, who started taking loans from licensed moneylenders a year ago.

Mr Ng said: "The low interest rate cap would squeeze many licensed moneylenders out of business and the gap would be quickly filled by the loan sharks."

Caught in moneylenders' web of late fees
Borrowers lured by 'cheap' loans get stuck in debt spiral
By Joyce Lim, The Straits Times, 2 Dec 2014

WHEN cleaner Goh Chin Ann borrowed $400 from a licensed moneylender in August, the interest stated on the agreement worked out to just eight cents a day.

Yet, Credit88's contract also stated that he had to pay back the entire loan the very next day, or face a $600 late-fee charge.

At the same time, the firm in Jurong also handed him a separate card with his actual repayment plan - $200 a month, over five months. This "plan" was not listed in the loan agreement.

When the 62-year-old, who earns $1,000 a month, defaulted on one of his instalments, he was warned of the "very, very high" late fee.

He then borrowed $500 from two other licensed moneylenders - Assure Capital in Clementi and AP Credit in Anson Road. Both listed the annual interest rate at 3.72 per cent, about half that charged by Credit88.

Both contracts also required the entire loan to be paid up the next day, or he would risk incurring a late fee of $1,250.

Soon, the companies were telling him he had chalked up thousands of dollars in debt.



Struggling to escape the hole he had dug for himself, Mr Goh, who had taken the loans to feed his alcoholic and gambling addictions, sought help from Blessed Grace Social Services, a support group for gambling addicts.

It arranged new and longer repayment plans for Mr Goh, who does not understand English and speaks in Hokkien.

But he will still end up paying more than $1,000 in interest for what on paper were very cheap loans.

He said: "It was easy to get the loans and I was desperate."

The Straits Times contacted all three moneylenders, but none would comment on Mr Goh's contract terms.

Other licensed moneylenders, who spoke on condition of anonymity, said the high late fees are a "scare tactic" to deter borrowers from defaulting.

But "it also allows moneylenders to cover themselves". "In the event that questions are asked about the repayment schedule which differs from the contract, they can say that the sum includes the late fee charged", said one moneylender.

Moneylenders' Association of Singapore president David Poh admitted that it is not uncommon for licensed moneylenders to impose such hefty penalties, as there are no rules on late charges, only a cap on interest rates.

Moneylenders are allowed to charge borrowers who earn below $30,000 a year a maximum annual interest of 20 per cent. For a $400 loan, that works out to about $6.70 of interest payable a month.

"The only way for moneylenders to earn a profit from low-income borrowers is through late fees," Mr Poh told The Straits Times. "We encourage the authorities to cap such fees, so borrowers do not suffer."

The Registry of Moneylenders, which regulates the industry, said it was aware of the "very high late fees". An ongoing review will address, among other things, this issue of high borrowing costs to better protect vulnerable borrowers, a spokesman said.

Early last month, a 4 per cent cap on both monthly and late-payment interest rates was proposed by a government advisory committee. It also suggested that no other fees be allowed.

Said the committee's chairman, Mr Manu Bhaskaran, director of Centennial Group International, a policy advisory group based in Washington, DC, and adjunct senior research fellow at the Institute of Policy Studies: "It is precisely because of such practices that the committee was formed by the Law Ministry."

At a dialogue with licensed moneylenders on Nov 3, Law Minister K. Shanmugam said that the cap was necessary to protect vulnerable borrowers with little knowledge or leverage.

Many moneylenders protested, arguing that the proposed rules would kill their business.

They also insisted that they did not target low-income borrowers, and usually turn them away, as it made little financial sense to loan small sums to them, given the limit on interest rates.

But according to gambling and debt support groups, moneylenders are more than willing to provide short-term loans to this group.

Said Mr Dick Lum, executive director of One Hope Centre, which counsels gambling addicts: "A lot of people who come to us for help are low-income earners who owe debts to licensed moneylenders."

Ms Tan Huey Min, general manager of Credit Counselling Singapore, a charity that provides counselling to those in debt, criticised the hefty late charges.

"Who can pay back the debt in one day? To give a loan at a low interest rate for one day and penalise the borrower with late fees is not right. It's unfair and unethical. These moneylenders are like a wolf in sheep's clothing.

"And because these moneylenders are near people's homes, they're especially tempting to those who borrow to gamble."

A cook, who declined to be named, told The Straits Times what happened after he borrowed $300 in February from a moneylender in Geylang. He was told to pay $130 each week, for four weeks.

That meant $220 in interest. According to the rules, he should have been charged a maximum of $4.60 for the four-week loan.

"I was told the late fees were very high, so I borrowed from another moneylender to pay the first one when I didn't have enough money," said the 65-year-old, who earns $1,450 a month.

He now owes $9,000 to 11 moneylenders.

"Sometimes, moneylenders will call me to offer a loan. It's strange that they have my particulars, even though I have not contacted them before."

Mr Vikram Nair, a lawyer and an MP for Sembawang GRC who sits on the Government Parliamentary Committee for Home Affairs and Law, said he is not sure if licensed moneylenders should be completely prohibited from operating in the heartland but he supports the recommendations made by the advisory committee.

"I have seen variations of some of the contracts. Some have very low interest rates but charge very high penalty fees. There's no clear legislation right now. It will be good to have laws to cap the interest rates and absurd penalty fees," he said.

"But the main risk is that it may encourage some borrowers unable to get legal loans to turn to illegal moneylenders."