To ask the Minister for Law (a) whether the rapid growth of legal moneylenders especially in the heartlands increases the risk of Singaporeans taking on more personal debt than they can reasonably service; (b) how may vulnerable borrowers be better protected from the temptation of easy credit from moneylenders; and (c) whether steps may be taken to reduce the aggressive marketing that the moneylenders undertake in the heartlands.
Ms Lee Li Lian, Punggol East
To ask 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 5 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 5 years.
To ask 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 5 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.
Mr David Ong Kim Huat, Jurong GRC
To ask 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.
Madam Speaker, with your permission may I take Questions 53-56 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 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.
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.