Advisory Committee Finalises Recommendations to Improve Balance between Borrower Protection and Access to Credit
1. In June 2014, the Ministry of Law announced the formation of an Advisory Committee to review the moneylending regulatory regime in Singapore. The Committee has since completed this review and today announced 15 recommendations to strengthen Singapore’s moneylending regulatory regime.
2. The recommendations aim to:
(i) protect borrowers, who may have noalternative but to go to moneylenders, by curbing egregious and unfair lending practices; and
(ii) allow the industry to remain commercially viable so that borrowers are not pushed to unlicensed moneylenders.
3. Under the existing regime, there is no cap on interest and late interest rates for borrowers earning more than $30,000 annually. Moneylenders are allowed to charge fees relating to variation of the terms of the loan contract, dishonoured cheques issued, unsuccessful GIRO transactions, and early redemption of the loan or early termination of the contract. There is also no cap on the total borrowing costs for moneylending loans.
4. The Committee’s recommendations focused on two key areas – interest rates and loan caps, and the moneylenders’ business practices.
Controls on borrowing costs and over-borrowing
5. On interest rates and loan caps, the Committee recommended restricting moneylenders to the following maximum rates:
(i) An upfront administrative fee of not more than 10 per cent of the loan principal;
(ii) Interest of not more than four per cent per month, on a reducing balance basis;
(iii) Late interest of not more than four per cent per month; and
(iv) Late fee of not more than $60 per month.
6. In addition, the total borrowing cost will be capped at 100 percent of the loan principal. This will help prevent debts from spiralling out of control, as the Committee noted several instances of debts growing by many multiples of the principal sum.
7. The Committee also recommended that borrowers earning $20,000 or more a year be subject to an aggregate unsecured borrowing cap of six times their monthly salary. Those who earn less than $20,000 a year will continue to be subject to the existing cap of $3,000. A Moneylenders Credit Bureau (MLCB) will be established to provide a central repository of information on borrowers using moneylenders.
8. The proposed caps should allow most moneylenders to continue to earn a reasonable return. Moneylenders will be incentivised to review their cost structures and undertake better credit risk assessment. Some level of consolidation is expected as less efficient operators leave the industry.
Moneylender business practices
9. The Committee also made recommendations related to practices in the moneylending industry. In particular, it recommended that a formalised debt restructuring regime with collective representation of the moneylenders be introduced, and that moneylenders adhere to a standardised set of loan terms and practices, including guidelines on debt collection.
10. The full list of recommendations made by the Committee can be found in Annex A.
11. The recommendations were shared with members of the moneylending industry and voluntary welfare organisations (VWOs) that provide debt-management counselling, as well as grassroots leaders, at a conference organised by the Institute of Policy Studies.
12. The views of various stakeholder groups had been sought at various focus group discussions, and a conference held in November 2014.
13. Mr K Shanmugan, Minister for Law and Foreign Affairs, addressed stakeholder questions on several issues, including the controls on borrowing cost and the aggregate unsecured borrowing cap, at today’s conference.
14. Chaired by Mr Manu Bhaskaran, Director of Centennial Group International and Vice President of the Economics Society of Singapore, the Committee included representatives from the moneylending industry and VWOs, academics with expertise in finance-related areas, and Members of Parliament who have previously spoken on moneylending issues.
15. The full list of Committee members can be found in Annex B.