Oral Answer by SMS Assoc Prof Ho Peng Kee to Parliamentary Question on interest rate caps for licensed moneylenders
14 Feb 2011 Posted in Parliamentary speeches and responses
Mdm Halimah Yacob, Jurong GRC
To ask the Minister for Law whether the Ministry will consider introducing caps on the amount of interest that licensed moneylenders can levy in view of the exorbitant rates that some are charging their borrowers since the law was liberalized in 2008.
Before we amended the Moneylenders Act in Nov 2008, we had carefully reviewed the issue of whether the interest rate caps for moneylending transactions should be lifted. Interest rate caps may not necessarily protect the borrower, as the moneylender can simply refuse to lend if he judges the risk too high. So if all interest rates were capped, moneylenders would be reluctant to lend to people with higher credit risk, who may then have no choice but to turn to loansharks. It was for this reason that interest rate caps were eventually lifted.
I should point out that, nevertheless, certain caps remain in place in the Act to protect low income borrowers earning less than $20,000 annually and who take small loans of no more than $3,000. We know that at times, borrowers with low or no immediate income may need to have access to credit to deal with situations such as family emergencies.
At the same time that the interest rate caps were lifted, safeguards to protect borrowers were put in place. Firstly, before granting a loan, the moneylender must inform the borrower of all the terms and conditions of the loan, including the interest rate, in a language that the borrower understands. The intent is to enable the borrower to make an informed choice. Secondly, the quantum of unsecured loans is capped at 2 or 4 times the borrower’s monthly income, depending on the borrower’s income. This safeguard discourages individuals from spending beyond their means. Thirdly, the moneylender is required to give the borrower a copy of the loan contract and provide half-yearly statements of account. These statements must contain details such as the principal, interest and fees outstanding.
Let me emphasize that borrowers have a right to ask, and indeed should ask, the moneylender to explain all the fees. They should also compare interest rates offered by different moneylenders. There are 239 licensed moneylenders listed on the website of the Registry of Moneylenders, up from 221 at the end of 2009.
Finally, where the interest or late interest charged is harsh or excessive and the borrower finds the transaction substantially unfair or unconscionable, he can file a claim in the Small Claims Tribunal or the Court under the Consumer Protection (Fair Trading) Act or Section 23 of the Moneylenders Act. The borrower can also lodge a complaint with the Registry of Moneylenders, who will investigate and take to task moneylenders who flout the law.
Last updated on 25 Nov 2012