Second Reading Speech by Senior Minister of State for Law, Indranee Rajah SC, on the Pawnbrokers Bill 2015

19 Jan 2015 Posted in Parliamentary speeches and responses

Madam Speaker,

1. I beg to move, “That the Bill be now read a Second Time”.

1. Introduction

2. Madam Speaker, the pawnbroking industry caters to the needs of individuals who require short-term financial relief and possess assets that can be offered as collateral.

3. The pawnbroking industry has grown significantly since the last set of substantial amendments to the Pawnbrokers Act (“the Act”) was moved in 1993.
   • The number of pawnbrokers has increased from 57 in 1993 to 204 in 2013.
   • The aggregate value of loans granted by pawnbrokers has also increased more than six times (from $856 million to $5.47 billion) during the same 20 year period.

4. In view of these developments, it is timely to update our legislation to ensure that the regulation of pawnbrokers keeps pace with the industry’s evolving business practices and the needs of pawners.

5. Given the comprehensive nature of the amendments, the Pawnbrokers Bill (“the Bill”) repeals the existing Act and re-enacts a new Pawnbrokers Act.

6. The key features of the Bill can broadly be divided into five categories, as follows:
   1. First, enhancement of the licensing requirements for pawnbrokers;
   2. Second, refinement of the processes relating to pawn tickets;
   3. Third, retention of key consumer protection provisions;
   4. Fourth, removal of the existing pawnbroking auction system; and
   5. Fifth, measures for the prevention of money laundering and for countering the financing of terrorism.

7. I will discuss each part in turn.

2. Enhancing Licensing Requirements for Pawnbrokers

8. Let me begin by discussing the enhancement of licensing requirements for pawnbrokers.

9. Presently, pawnbrokers are required to hold a licence for carrying on their business, with it being an offence to act as a pawnbroker or to hold oneself as being in the business without a valid licence. The current licensing criteria for pawnbrokers include satisfying the Registrar that the applicant is, amongst other conditions, of “good character” and “a fit and proper person” to hold the licence.

10. The Bill enhances the licensing requirements for pawnbrokers in the following ways:
    1. First, the Bill imposes new statutory duties on licensees, such as the duty to maintain a minimum paid-up capital of $2 million for the first branch and $1 million for every subsequent branch; and to appoint an auditor to conduct an annual audit of their business. In addition, the amount of security deposit which licensees are required to furnish will be raised from the current $20,000 to $100,000. This is expected to enhance the pawnbrokers’ compliance with the regulations.
    2. Second, the licensing requirements will be made more stringent. For example, under clause 10 of the Bill, the Registrar will now have the power to refuse to grant or renew a license if, amongst other matters, he is of the opinion that:
       1. a director or a manager of the applicant is not a fit and proper person to carry on or manage the applicant’s business; or
       2. a substantial shareholder of the applicant has carried on the business of pawnbroking within or outside Singapore in a way that renders him unfit to hold a license.
11. In addition, the Bill makes it an offence for a person to become a substantial shareholder, or be appointed as a director or manager of the licensee, without the Registrar’s prior approval.
    3. Third, the Bill enhances the Registrar’s enforcement powers to allow for more effective regulation of pawnbrokers.
       • For example, the Registrar will be granted powers to order a person to produce relevant information or documents in that person’s possession, for the purpose of determining whether the Act has been breached.
       • Where a licensee is convicted of an offence under the Bill, the Registrar will also have the power to:
         1. suspend the license or vary any condition of the license, or both; or
         2. revoke the license.
       • In addition, the Registrar may order the licensee to pay a financial penalty of up to $20,000 per breach, subject to a cap of $100,000.

3. Refinement of Processes Relating to Pawn Tickets

11. I now move to the refinement of the processes relating to pawn tickets.

12. Presently, the Act requires a pawnbroker to issue a pawn ticket to the pawner when taking a pledge in pawn. The pawner needs to present the pawn ticket to the pawnbroker in order to redeem his pledge. Where a pawn ticket is lost or destroyed, the Act currently requires the pawner to go through the process of:
    1. First, going to the pawnbroker to obtain a printed form of declaration;
    2. Second, making a statutory declaration before a Commissioner for Oaths or a Notary Public; and
    3. Third, delivering the declaration to the pawnbroker within three days after the pawnbroker had initially provided the printed form of declaration to the pawner.

There has been feedback that the current process is cumbersome and pawners have to incur an additional cost when making the statutory declaration.

13. The Bill simplifies the process of obtaining a replacement ticket by allowing such an application to be made to the pawnbroker without the need to make a declaration before a Commissioner for Oaths or a Notary Public. The pawnbroker will only need to make reasonable inquiries to satisfy himself of the truth of the matters stated in the application and that the applicant is entitled to redeem the pledge. Once he is satisfied, he will issue a replacement ticket to the applicant directly and cancel the existing pawn ticket.

14. To minimise the risk of this simplified procedure being misused, it will be an offence for any person to knowingly make or use a false statement in the application to obtain a replacement pawn ticket.

15. In addition, the Bill introduces a new provision allowing pawners to sell their pawn tickets to pawnbrokers, who are currently prohibited from purchasing pawn tickets. This provision will help to create a more competitive market as, for example, a pawner will now be able to sell his pawn ticket to another pawnbroker who may be willing to offer a more attractive price for the ticket.

4. Retention of Key Consumer Protection Provisions

16. Let me now discuss the key consumer protection provisions that are retained in the Bill.

17. Under the current Act:
    1. the pawnbroker’s interest rate is capped at 1.5% per month, and any breach of this cap is an offence;
    2. the minimum redemption period for pledges is also set at 6 months.

These safeguards, which exist to protect the pawner, remain unchanged under the Bill.

18. Where a pledge has been damaged as a result of fire or is lost, the Act currently requires the pawnbroker to compensate for the value of the pledge, with the compensation amount being set at 1.5 times of the loan amount. The right to compensation in such situations will be retained in the Bill. However, the compensation will be pegged to the value of the pledge instead of the value of the loan. The reason for this is that it will be fairer to the pawner, as there could be situations where the pawner takes out a loan that is substantially lower than the value of his pledge. Thus, under clause 60 of the Bill:
    1. Where the pledge is lost, the pawnbroker must provide the pawner with compensation for the value of the pledge as determined by the valuation provided by the pawnbroker at the point of pawning; and
    2. Where the pledge is damaged, the pawnbroker must allow the pawner to choose between obtaining full compensation for the value of the pledge, or having the pledge returned to the pawner along with partial compensation for the reduction in value of the pledge resulting from such damage.

5. Removal of Existing Pawnbroking Auction System

19. The Bill also proposes the removal of the existing pawnbroking auction system.

20. Customers provide pledges as security for pawnbroking loans. If the loans are redeemed, the pledges are returned. When the loans are unredeemed, the pawnbroker gets to realise the pledge in satisfaction of the loan.

21. Madam Speaker, the Act presently provides two ways for dealing with unredeemed pledges.
    1. Where the pledge is pawned for $50 or less, it becomes the pawnbroker’s property at the end of the time allowed for redemption.
    2. Where the pledge is pawned for more than $50, such pledges currently have to be disposed of by sale at an auction. The pawner is entitled to any surplus generated from the auction. This surplus refers to the proceeds of the auction sale of the pledge, after deducting the pawner’s outstanding debt and the auction expenses.

22. At present, the pledges for about 95% of pawnbroking loans are redeemed by pawners. For the remaining 5% of unredeemed pledges which are subsequently put up for auction, up to 90% of such pledges are normally uncontested at the auctions and would therefore yield no surplus to the pawners. However, the cost of holding the auctions adds to the pawnbrokers’ business costs, and this is passed on to all pawners, including those who redeem their pledges and those who do not receive any surplus from the auctions.

23. The Bill therefore proposes to replace the auction system with one as follows:
    1. Upon expiry of the redemption period, which is at least 6 months, if the pledge is unredeemed, the pawnbroker must issue a notice of intended forfeiture within 2 months of the expiry date.
    2. This will give the pawner one last chance to redeem the pawned item. If the pawner does not do so, the unredeemed pledge will be forfeited to the pawnbroker one month after the issuance of the notice of intended forfeiture.
    3. Once the pledge is forfeited, ownership of the pledge will vest with the pawnbroker and the pawner’s debt will be correspondingly expunged.

24. With the competitive pawnbroking marketplace, this change ought to benefit pawners as pawnbrokers could possibly pass on the resultant cost savings to pawners. These may be in the form of offering lower interest rates or higher loan-to-valuation ratios for the pledges.

25. To safeguard the pawners’ interests, the Bill requires the pawnbroker to provide an indicative valuation of the pledge to the pawner at the point of pawning, as well as to provide a fresh indicative valuation to the pawner at the end of the redemption period. This will allow the pawner to compare indicative values from different pawnshops, and allow the pawner to assess which pawnshop offers the best value for his pledge. This will enhance transparency and enable pawners to make better-informed decisions.

6. Measures for the Prevention of Money Laundering and for Countering the Financing of Terrorism

26. Madam Speaker, the Bill also introduces a new obligation on pawnbrokers to implement adequate programmes and measures to prevent money-laundering and counter the financing of terrorism.

27. This is part of Singapore’s on-going efforts to ensure compliance with international standards and is aligned with the practices employed by the financial sectors in Singapore.

28. Under the Bill, the key duties imposed on pawnbrokers include a duty to conduct due diligence checks on customers and a duty to file reports on any suspicious transactions or circumstances.

7. Conclusion

29. Madam Speaker, I beg to move.

Last updated on 19 Jan 2015