Cashback Features in Hire-Purchase Schemes

Mr Cedric Foo Chee Keng asked the Minister for Trade and Industry (Industry) whether the Ministry will consider regulating hire-purchase schemes that incorporate upfront cash back to hirers as these schemes contain features akin to moneylending.

Dr Tan Wu Meng asked the Minister for Trade and Industry (Industry) (a) whether cashback features in hire-purchase schemes constitute a form of moneylending; (b) whether such schemes are de facto unsecured loans when goods depreciate quickly; (c) in 2016, what proportion of buyers have defaulted on their payments for three months or more; (d) whether such a market is sub-prime; and (e) whether additional regulation is needed.

Today, hire purchase schemes and moneylending activities are regulated under the Hire Purchase Act and the Moneylenders Act respectively.

Hire purchase is one of a range of options that consumers can choose from to finance their purchases. Hire purchase schemes are private commercial arrangements. We do not have information on the number of hire purchase schemes in the market and the default rates of such schemes.

The various consumer financing options come with different terms and conditions to cater to the different needs of consumers. Some business schemes offer upfront cashback and gifts to attract consumers.

However, consumers should be aware of the tradeoffs between the different schemes available in the market. For example, schemes without any upfront cashback or gifts typically have lower interest rates and the repayment period is shorter. Conversely, schemes with very attractive upfront cashback or gifts, come with much higher interest rates and a longer repayment period. The total amount that consumers pay for their purchases would be higher under such schemes, potentially more than double the value of the goods they purchase.

The Hire Purchase Act specifies the minimum information that companies must provide to consumers in writing before they enter into a hire purchase agreement. This includes information on the charges for early settlement of the agreement; effective interest rates; interest rates for overdue instalments and administrative charges. We strongly encourage consumers to review the terms carefully and assess their ability to meet the financial commitments before signing the agreement. The Monetary Authority of Singapore will also be working with MoneySENSE, the national financial education programme, to raise consumer awareness on business schemes that come with upfront cashback.

While upfront cashback payment to consumers does not constitute moneylending under the Moneylenders Act, it is still a form of credit extension to consumers. The Government is watching closely the practice of businesses offering significant cashback amounts with their schemes. We take a serious view of business practices that irresponsibly entice consumers to take up excessive credit and will not hesitate to take action or review our regulations, if necessary, to restrict such practices.