Impact of Growth of Moneylenders

Ms Lee Li Lian asked  the Minister for Law (a) how are the effective interest rate caps of 13% and 20% for secured and unsecured loans for lower income earners determined; (b) whether the caps can be extended to loans for higher income earners; and (c) for each year in the last five years, what is the average interest rate charged by licensed moneylenders for secured and unsecured loans respectively to borrowers with annual income of less than $30,000 and to those with annual income of $30,000 or more.

Ms Lee Li Lian asked the Minister for Law (a) what is the number of places of business operated by licensed moneylenders as at 31 December of each year in the last five years; (b) whether a limit is set to the number of places of such businesses in each HDB town; and (c) what is the value of such moneylending loans as at 31 December of each year in the last five years.

Mr David Ong asked the Minister for Law whether there is a legal chargeable rate or cap for late payment charges when borrowing from legalised moneylenders and, if not, whether the Ministry will consider legislating such a rate or cap.

The Senior Minister of State for Law (Ms Indranee Rajah) (for the Minister for Law): Mdm Speaker, with your permission, may I take Question Nos 53 to 56 together, as they are related?

The Members' concerns can be categorised into two broad themes. The first is a concern over the number of moneylenders in the

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heartlands. The second is whether the Government can do more to protect borrowers.

Let me set the context for our reply. Overall, the amount of loans disbursed by licensed moneylenders constitutes less than 1% of the consumer credit market. The number of licensed moneylenders increased from 173 in 2008 to 249 in 2011. In 2012, the Ministry imposed a moratorium on new licences, and no new licences have been granted since. The number of licensed moneylenders has since decreased to 209 in 2012.

The Government agrees with the concern about excessive borrowing and credit being too accessible to borrowers. However, if legal access to credit is completely cut off, the consequences will be worse. Borrowers will be driven to seek loans from unlicensed moneylenders or other illegal sources. If people need money, they will try and find a way to borrow. We are all aware of the exploitation and harassment that these borrowers are subject to once unlicensed moneylenders enter the picture.

Consequently, the Government's approach is to maintain a balance in allowing borrowers reasonable access to credit from licensed moneylenders, and providing them, especially those of lower income, with adequate protection.

We have enacted various safeguards that are aimed at achieving this balance.

First, moneylenders must meet several criteria before their licences are granted. These include ensuring that they are of good character to manage the business and the placement of a security deposit to ensure the proper conduct of the business. Moneylenders found to have committed offences will have their licences suspended, not renewed or revoked.

Second, moneylenders are required to explain the terms of a loan to borrowers before granting the loan. These include the Effective Interest Rate or "EIR", which makes clear the true cost of the loan.

Third, for borrowers with an annual income below $30,000, the EIR is capped at 13% for secured loans and 20% for unsecured loans. These correspond to the previous nominal interest rate caps of 12% and 18% respectively. There are also caps on the unsecured loan amounts for borrowers with annual income below $120,000.

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Fourth, moneylenders are required to explain all the contingent charges in the loan, such as late interest or late fees that are levied when a borrower is late in repayment. For borrowers with annual income below $30,000, moneylenders are prohibited from charging a late interest rate beyond the actual interest rate charged for the loan. As for late fees, these are currently not capped. However, moneylenders are required to disclose such fees before granting the loan so that any borrower who finds a particular fee objectionable can choose not to take up the loan. It ensures that the borrower will have the full facts before he decides to borrow. Nonetheless, fees charged on the loan is an issue which my Ministry is looking at, as the cost of borrowing is significantly affected by such fees.

Finally, there are also in place stringent advertising rules which prohibit moneylenders from advertising and promoting their business through unsolicited communications. Given these rules, borrowers will generally only see advertisements when they are actively searching for moneylenders.

In essence, the issue is this: you have borrowers who want to borrow. They cannot borrow from banks. Can you prevent them from borrowing by preventing them from going to licensed moneylenders?

I would like to assure Members that we are monitoring the moneylending industry closely, and where necessary, we will introduce further safeguards to protect borrowers. Aside from the issue of fees, my Ministry is considering measures to complement the Monetary Authority of Singapore's recently-introduced cap on unsecured borrowing from financial institutions and ensure that borrowers do not over-extend themselves. We are also reviewing whether interest rate caps should be extended to loans for higher income earners.

At present, we have not imposed any limits on the number of moneylenders in any geographical location; Singapore is not such a big country that travelling cost will effectively deter borrowing from moneylenders. However, we will also review this position.

Mdm Speaker, I thank the Senior Minister of State for her very comprehensive answer, as well as some of the reviews that are in the pipeline. I would like to ask three supplementary questions. Hopefully, the Ministry could include these points as part of the review on the moneylenders' regime.

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First, I do feel there is a need to look at the number of moneylenders that operate in the heartlands. Overall, there may be one number for Singapore, but there should be a cap on the number allowed to operate in the heartlands.

Also, the age limit to be eligible to be borrowing from moneylenders should be increased from the current 18 years old, to at least 21 years old so that it is in line with banks' lending requirements on credit cards and personal loans.

Next, the Senior Minister of State talked about people over leveraging. That is precisely the key issue: whether Government as part of the review of the moneylending regime could look at what support can be given or that people can expect to get from the Government, to provide for a systematic process of deleveraging.

Mdm Speaker, I can certainly assure Ms Foo that we will look into these matters in our review.

Mdm Speaker, I am seeing more cases in my Meet-the People Sessions (MPS), as more residents face problems arising from easy credit from licensed moneylenders. Some of their debts have snowballed to three times the principal amount, and all because of the uncapped late penalty charges. I would like to ask the Senior Minister of State and the Ministry to look into instituting a cap on these penalty charges, because some can be very exorbitant. Their debts will be spiralling out of control.

Mdm Speaker, as indicated earlier, that is something that we are currently reviewing.

Mdm Speaker, given that moneylenders are in the business of lending money, are there plans to have them regulated by the MAS?

That is a matter that the MAS will have to decide whether or not it will accede to. Currently, for historical reasons, moneylenders fall under the Ministry of Law. The Ministry of Law would be more than happy to explore with the MAS if the MAS would like to take over this.