8 Jan 2018 Posted in Parliamentary speeches and responses
- Mr Deputy Speaker, Sir, I beg to move, “That the Bill be now read a Second time.”
- Licensed moneylenders are tightly regulated under the Moneylenders Act as the industry caters to borrowers who tend to be more vulnerable. These borrowers often need short-term credit urgently, but cannot obtain it from financial institutions, possibly due to their level of income or credit history.
- In regulating licensed moneylenders, the Ministry of Law seeks to maintain a balance in allowing individual borrowers reasonable access to credit from licensed sources, while ensuring that borrowers, particularly lower-income borrowers, are adequately protected.
- The Advisory Committee on Moneylending (ACML) was convened in June 2014 to comprehensively review the regulatory regime for moneylending with these objectives in mind. The Committee issued its Final Report in May 2015 with 15 recommendations to MinLaw.
- MinLaw accepted 12 of the Committee’s 15 recommendations and has worked with the industry and the VWOs to implement them progressively.
- In 2015, we introduced stricter caps on borrowing costs.
- In March 2016, we launched the Moneylenders Credit Bureau (“MLCB”), which facilitates better tracking and monitoring of unsecured loans. The MLCB provides up-to-date details of a borrower’s creditworthiness and indebtedness, to enable moneylenders to make a more informed and responsible lending decision.
- The Moneylenders (Amendment) Bill is the latest step in these efforts. Its key objectives are to:
- provide better protection for borrowers;
- strengthen the regulatiion of moneylenders; and
- professionalise the moneylending industry.
- One key change introduced by clause 19 in this Bill is the aggregate loan cap. The Moneylenders Rules presently cap the amount of unsecured credit an individual may borrow from any single moneylender. However there are borrowers who approach multiple moneylenders for loans and consequently may still become over-indebted despite the current restrictions. The proposed aggregate loan cap in the Bill addresses this issue. It sets an overall limit on the amount an individual can borrow from all licensed moneylenders, combined.
- We intend to set an aggregate cap of $3,000 for individuals with an annual income below $20,000, and a cap of six times the monthly income for all other individuals, as recommended by the ACML.
- The aggregate loan cap is intended as a measure to prevent over-borrowing. The proportion which currently over-borrows is small. Between March 2016 and March 2017, less than 2% of Singaporean borrowers who took out loans have an outstanding balance exceeding the cap.
- Even though only a small number of Singaporeans over-borrow today, they still need help with managing their debt. We also want to ensure that the numbers do not grow. MinLaw will work with the voluntary welfare organisations (VWOs) and the moneylending industry to help such borrowers improve their situation. The Moneylenders Association of Singapore, or MLAS, is also developing a more formalised framework, the Moneylenders Debt Restructuring Scheme, to complement existing debt assistance schemes run by VWOs. Details of this industry-led initiative will be announced by MLAS later this year.
- Let me now take the House through the key amendments in the Bill.
- Better protection for borrowers
- To facilitate the implementation of the aggregate loan cap, clause 18 of the Bill introduces a new Part IIIA, which sets out the regulatory framework for the MLCB, and imposes new obligations on moneylenders:
The Bill introduces a new section 30N, which requires moneylenders to obtain a borrower’s credit report from the MLCB before granting any loan.
Moneylenders will also be required to submit accurate borrower information to the MLCB and provide timely updates to the MLCB when borrowers repay their loans.
Likewise, the Bill requires the MLCB to facilitate moneylenders’ requests for credit reports.
The Bill also requires the MLCB to protect the integrity, security, and confidentiality of any borrower information and credit reports in its possession, in addition to existing protections under the Personal Data Protection Act 2012.
- The Bill introduces new provisions to allow the Registrar of Moneylenders (“the Registrar”) to exercise greater oversight on the MLCB. For example:
The proposed section 30F will enable the Registrar to replace the MLCB operator under specific conditions, such as if the operator fails to satisfy its obligations under the Moneylenders Act; and
The proposed section 30I gives the Registrar various powers to ensure the smooth and continued operation of the MLCB, especially in the event of a handover to another operator.
- Together, these amendments provide a stronger regulatory framework to provide individual borrowers with safer access to personal credit.
- Strenghtening regulation of moneylenders
- Next, the Bill also seeks to strengthen the regulation of the moneylending industry in three ways.
- First, the Bill will expand the powers of the Registrar of Moneylenders to exclude undesirable persons from the industry.
Presently, Part II of the Moneylenders Act empowers the Registrar to revoke, suspend, refuse to issue, or refuse to renew a moneylenders’ licence on a number of grounds. Specifically, sections 7(d) to (g) permit the Registrar to do so where he is not satisfied as to the qualification, experience, or character of an individual applicant. This is also applicable to a director, partner or substantial shareholder of a corporate applicant, or a person responsible for the management of the moneylending business. Clause 7 of the Bill expands the scope of this power to include persons who are presently employed or engaged, or whom a moneylender proposes to employ or engage, to assist in the business of moneylending.
Clause 10 also introduces a new section 11A, which provides that a moneylender must obtain the Registrar’s written approval before employing or engaging any assistant in its business of moneylending.
Presently, the Act requires that a moneylender obtain the Registrar’s approval as soon as practicable after someone has become a substantial shareholder or changes his substantial shareholding. Clause 11 of the Bill will require moneylenders to obtain this approval before the person becomes a substantial shareholder, or before any shareholder increases his substantial shareholding.
Existing approvals to engage in moneylending may be revoked if the Registrar discovers that any employee, director, or substantial shareholder of the moneylender is not a fit and proper person or a person of good character. Failure to comply will also lead to enforcement and licensing action.
- Second, to prevent moneylenders from circumventing present regulations by holding “spare licences” – which they can use if their original licences are revoked or suspended – clause 8 enables the Registrar to revoke or suspend a licence if the moneylender fails to commence its new business within 6 months of the issue of the licence. This will ensure that moneylenders holding licenses today but who are not actively operating a moneylending business do not retain these licences.
- Third, the Bill will also strengthen the regulation of moneylenders by tightening the mandatory requirements on loan terms and contracts.
- Presently, it is an offence for a moneylender to make any loan contract that does not truly state the principal or interest rate of the loan. Clause 12 expands the scope of this offence to include loan contracts that do not truly state the late interest rate or any permitted fees payable as well.
- Under the current regime, borrowers are protected from onerous loan terms by existing caps on fees, interest and late interest. If a loan transaction is found by the Court to have breached these caps, the Court can re-open the transaction and the borrower may be relieved from excessive payments. However, it is currently not an offence if a moneylender breaches these caps.
- This is changed by Clauses 13 and 14 of the Bill.
- Under the Bill, it will be an offence for a moneylender to enter into a loan contract that breaches the caps on interest or late interest, which will be punishable by a fine of up to $20,000 and / or imprisonment of up to 6 months.
- The Bill also makes such a loan contract unenforceable, and any guarantee or money paid out by the moneylender under the contract will not be recoverable in any court of law.
- Professionalising the moneylending industry
- The third area which the Bill touches on is the professionalisation of the moneylending industry.
- Clause 6 of the Bill introduces a new section 6A, which requires that all licensed moneylenders be companies with a minimum paid-up capital not less than the prescribed amount. Following the recommendation of the ACML, this amount will be prescribed at $100,000. Today, nearly 70% of licensed moneylenders have already registered as companies.
- Clause 17 of the Bill will also impose a new requirement on every moneylender to submit annual audited accounts to the Registrar. Audit requirements are not unusual and are presently imposed on many regulated entities across various sectors. Given the nature of the moneylending business, there is greater imperative for independent audit supervision.
- Sir, over the last few years, the Government’s regulatory reforms have helped raise minimum standards and weed out bad business practices. Complaints against licensed moneylenders have dropped from 271 in 2012 to 104 in 2017, a reduction of more than 60%.
- Going forward, MinLaw will complement these regulatory reforms with business-led initiatives to further professionalise the moneylending industry. We seek to encourage good business practices and better business models that can benefit borrowers. These include more effective methods of credit assessment to reduce default rates, more compassionate and responsive debt assistance schemes and more affordable terms of credit.
- To encourage new business models, promulgate better business practices and spur improvements, MinLaw will explore lifting the current moratorium in a limited and controlled fashion, to allow a few new players with established track records in related financial areas to pilot new business models in the moneylending industry. We will release more details when ready.
- Sir, in summary, the amendments to the legislative framework introduced in the Bill are important steps in helping us to better protect individual borrowers while allowing them to have reasonable access to credit.
- Sir, I beg to move.
Last updated on 08 Jan 2018