9 Mar 2012 Posted in Parliamentary speeches and responses
Mr Speaker, Sir, I beg to move, “That the Bill be now read a Second time.”
Sir, I mentioned in this House earlier this week, that MinLaw is amending the moneylending legislations to further tighten regulation of the industry and better safeguard the interests of borrowers, in particular lower income borrowers.
We are proposing amendments to the Moneylenders Act in this Bill. We have also made amendments to the Moneylenders Rules. Let me first take the House through the Bill.
- The Bill seeks to:
- Strengthen the enforcement powers of the Registry of Moneylenders;
- Safeguard borrowers’ information from unlicensed moneylenders; and
- Clarify the provisions governing moneylenders’ place of business.
Strengthen the enforcement powers of the Registry of Moneylenders
- Sir, Section 25 sets out the Registry’s statutory powers to inspect the business premises of licensed moneylenders and to require them to furnish information and documents. Clause 4 amends Section 25 to allow the Registry to engage any person, for example, auxiliary police officers, to assist the Registrar or an authorised public officer in exercising the Registry’s statutory powers. While they will be able to view and make copies of documents being inspected, the power to seize and remove documents or equipment from the premises inspected will continue to be exercised by public officers only. The amendment will enhance the Registry’s capacity to conduct more frequent and thorough enforcement checks on moneylenders.
- Clause 4 also amends Section 25 to give the Registry powers to specify the time, place and manner in which information or documents required by the Registry are to be furnished by the moneylender.
Safeguard borrowers’ information from unlicensed moneylenders
- Section 14(1) creates the offence of unlicensed moneylending and Section 14(3)(A) stipulates a non-exhaustive list of activities which are deemed to be assisting in unlicensed moneylending. Such activities include allowing premises to be used for unlicensed moneylending, and collecting or demanding payment of a loan on behalf of an unlicensed moneylender. While the generality of Section 14(1) makes all activities which assist in unlicensed moneylending illegal, we propose to make it explicitly clear that it is a criminal offence to share information on borrowers with unlicensed moneylenders. In this regard, Clause 3 amends Section 14(3A) to include the activity of any person sharing information on a potential borrower with an unlicensed moneylender, or referring a potential borrower to an unlicensed moneylender, as assisting in unlicensed moneylending . A person convicted of the offence will be liable for a fine of up to $300,000 and depending on whether it is the first or subsequent offence, a maximum of four or seven years’ imprisonment and a maximum of six or 12 strokes of the cane.
Clarify the provisions governing moneylenders’ place of business
- Section 10(13)(a) makes it an offence for moneylenders to commence their business at a place which the Registry has not approved. Clause 2 amends Section 10(13)(a) to make it explicit that it is an offence for moneylenders to carry on their moneylending business at an unauthorised place of business, regardless of when it commenced.
Background to Amendments to the Moneylenders Rules
- Sir, before I touch on the amendments we are making to the Moneylenders Rules, I will briefly explain the broad rationale for these amendments. Since the Moneylenders Act was amended in 2008, the moneylending industry has grown. We have been monitoring developments and tightened the moneylending regulations last year, through, amongst others, advertising directions and licence conditions.
- During the debates earlier this week, I briefly touched on the changes to the Moneylenders Rules to further strengthen protection for borrowers. I will now share with the House in greater detail these amendments , which cover four main areas:
- Mandate the use of Effective Interest Rate.
- Extend coverage of caps on interest rate, to a larger group of borrowers.
- Remove certain fees from the list of fees which moneylenders are allowed to charge borrowers.
- Abolish all exceptions to the limits on the amount of unsecured loans that a borrower can obtain.
Mandate the use of Effective Interest Rate
- First, we are mandating the use of Effective Interest Rate (or EIR), instead of Nominal Interest Rate (or NIR), to be the basis for interest rate caps. Currently, there are interest rate caps, based on NIR, of 12 percent for secured loans and 18 percent for unsecured loans, for borrowers earning less than $20,000 a year. Henceforth, the interest rate cap of 12 percent NIR will be replaced by its approximate equivalent of 13 percent EIR, while the cap of 18 percent NIR will be replaced by its approximate equivalent of 20 percent EIR.
- Moneylenders will also be required to compute and disclose the EIR of their loan packages to borrowers. This is similar to the practice of banks.
- Compared to NIR, EIR takes into account the compounding effect of the number of instalments over a one-year period. This means that EIR better reflects the actual cost of borrowing over a one-year period. Using EIR will also help borrowers more easily compare different loan packages.
- Moneylenders who do not provide the Effective Interest Rate of the loan package to their borrowers are liable to a fine not exceeding $20,000, or to imprisonment for a term not exceeding 6 months, or to both; and in the case of a second or subsequent offence, to a fine not exceeding $40,000, or to imprisonment for a term not exceeding 12 months, or to both.
Extend coverage of caps on interest rate, to a larger group of borrowers
- Second, we are extending the coverage of the interest rate caps to a larger group of borrowers, from applying only to borrowers earning less than $20,000 a year, to those earning less than $30,000 a year. This will apply to both secured and unsecured loans. In other words, for borrowers earning less than $30,000 a year, the interest rate for secured loans that moneylenders can charge will be capped at 13 percent EIR and for unsecured loans, it will be capped at 20 percent EIR. Borrowers earning $30,000 or more a year generally qualify for credit facilities from banks such as credit card facilities, and are not dependent solely on moneylenders for credit. Thus, we have decided not to introduce any interest rate caps for them for now.
- Sir, when we lifted some interest rate caps in 2009, our consideration was that by allowing market forces to freely determine interest rates, there would be greater access to credit. This is because the credit profile of some borrowers would make it unattractive for moneylenders to lend to them, if the interest rates are capped and moneylenders cannot charge an interest commensurate with the credit risk. Such borrowers might then turn to loan sharks, putting themselves at risk, and contributing to an increase in unlicensed moneylending activities.
- Access to credit remains a key concern for my Ministry. Nevertheless, after reviewing the developments in the industry, we have decided to extend the coverage of the interest rate caps to a larger group of lower-income borrowers. We are conscious that in doing so, there may now be some borrowers to whom licensed moneylenders may not be willing to lend at the regulated rates. So this move, which ultimately is a judgement call, is not without its trade-offs.
- Even under the current framework, there are people who turn to unlicensed moneylenders, because they cannot borrow from legitimate sources. We need to be mindful that we do not drive more and more people to unlicensed moneylenders. We need to try and give protection to borrowers, without creating a situation where borrowers cannot access credit from licensed moneylenders. This is the balance which we have been trying to fine tune, and will continue to monitor, to help borrowers, in a way which is practical and feasible.
Remove certain fees from list of fees which moneylenders are allowed to charge borrowers
- Third, we are disallowing the charging of three fees currently permitted under the Rules, namely for acceptance of the loan application, for acceptance or renewal of a revolving credit loan, and for any payment not through electronic funds transfer. These fees are typically charged up-front by moneylenders. These fees make the cost of borrowing less transparent, and make it harder for borrowers to compare loan packages. The fees also increase borrowing costs.
- Apart from these three fees, there are six conditional fees permitted under the Rules. These fees can be charged only if certain conditions arise, for example, upon borrowers breaching or varying the loan contract. These will continue to be permitted.
Abolish all exceptions to the limits on the amount of unsecured loans that a borrower can obtain
- Fourth, we are disallowing all exceptions to the limits on the amount of unsecured loans that a borrower can obtain. The limits to loan quantum serve to prevent excessive borrowing. However, these exceptions allow individuals to borrow more than the loan quantum caps stipulated in the Moneylenders Rules. For example, borrowers with an annual income of $20,000 or less are not allowed to take unsecured loans of more than $3,000. However, the exceptions have allowed such borrowers to borrow more than $3,000, when they borrow for purposes such as business or renovation. The exceptions also allow moneylenders to impose interest rates beyond the stipulated interest rate caps. These exceptions can lead to borrowers taking on excessive debt. As such, we are disallowing these exceptions.
- Sir, these amendments to the Rules have been approved, but will take effect only on 1 June 2012, to give the industry sufficient time to adjust to the changes.
Advisory Committee on Moneylending Issues
- Sir, I should also share with the House that the Ministry has recently set up an Advisory Committee on Moneylending Issues (or ACMI), which I am chairing. The inaugural meeting was held last month. The committee comprises representatives from the Moneylenders Association of Singapore, Credit Counselling Singapore, One Hope Centre and The Silver Lining Community Services. One Hope Centre and The Silver Lining both provide counselling and rehabilitation services for people with gambling and debt problems, and their involvement in the committee will give us insights into providing safeguards against excessive debt. The Committee has two grassroots advisors as members, as well as representatives from MHA, MCYS and MAS. ACMI will provide us with regular advice and feedback on moneylending issues, such as on the effectiveness and community impact of the policies governing the industry, and on the most effective way to educate borrowers.
- In conclusion, let me reiterate the Ministry’s commitment to regulate the moneylending industry firmly but fairly. We will continue to keep a close watch, and will recalibrate the regulatory framework whenever necessary.
- Sir, I beg to move.
The amendments moved in Parliament on 9 March 2012 were related to the Moneylenders Act (please see Fact Sheet).
At the same time, we are amending the Moneylenders Rules (please see Fact Sheet - Amendments to the Moneylenders Rules (0.23MB)) and these will come into effect on 1 June 2012.
Video: Channel NewsAsia 9 March 2012 - Changes to Moneylenders Act to help improve protection for borrowers
Last updated on 25 Nov 2012