The first quarter of 2020 was the hardest part of the COVID 19 health crisis. Nobody saw it coming. The virus scare and the uncertainty resulted in a massive panic and closures of businesses which raised Singapore’s unemployment rate to 5.19% from 3.1% in 2019.
When the whole nation was put under a ‘circuit breaker,’ others had enough savings and stable jobs to support emergency expenses. Unfortunately, that’s not the case for everyone. Low-income earners who are in the no-work-no-pay setup were gravely affected by the pandemic.
Tight financial situations can trigger one’s desperation. Anything that promises to provide some financial relief might appear to be a reasonable option in times of need. To avoid falling into a debt trap, it’s wise to know the ins and outs of Singapore’s Moneylenders Act (MLA).
The role of the Moneylenders Act in regulating the licensed moneylenders in Singapore
Even before the pandemic, the money lending business has been gaining popularity so much that some illegal lenders are thriving. Fortunately, a law monitors moneylending businesses in Singapore and aims to protect both borrowers and lenders.
Granting of License
No matter what reason the client has when borrowing money, one shall not borrow money from unregistered and illegal lending businesses.
According to the MLA , lenders are not allowed to operate a moneylending business unless they are (1) authorized to do so by license, (2) excluded moneylenders; or (3) he is an exempt moneylender.
It’s strongly stated that in this act, unlicensed moneylenders should be prohibited from lending money unless they are not carrying out the business of moneylending. Money lending refers to a system that has continuity in the loan transactions.
On the other hand, excluded money lenders are allowed by the MLA and under any other written law to lend money. For instance, a pawnbroker licensed by the Pawnbrokers Act 2015, amongst others.
Approval of Places of Business
One major thing that differs a licensed moneylender from loan sharks is its business location. All licensed moneylenders are placed strategically in places that are accessible to the public.
Putting up a legitimate money lending business in Singapore can’t happen in a snap of a finger. Any money lending business that wishes to operate should send a letter to the Registrar with regard to its intention to start a business at a specific place. Furthermore, the Registrar is allowed to approve the place of business, with or without conditions, and may also reject the request.
Also, under this act, the licensee should place its business name with the words “Licensed Moneylender” in outside its business place to make it visible to any potential client.
Information of the people in the management
Unlike loan shark operators, licensed moneylenders are required to inform the Registrar about the identity and credibility of the people working in the management.
It’s clearly stated in the MLA that the licensee cannot permit a person to (1) take part (whether directly or indirectly) in the management of the licensee’s business of moneylending; or (2) become a director of the licensee, unless approved by the Registrar.
The Registrar must refuse an application if the person is not fit for the position and has been convicted of any offence involving dishonesty or moral turpitude. Specifically, if the person participated in corruption, drug trafficking, terrorism, or other regulation under the United Nations Act.
With accessible and advanced technology, almost anyone can create their own advertisement and make it look authentic. In the case of money lending, how would one know if the offer is from a licensed moneylender?
According to MLA’s advertising rules, licensed moneylenders are only allowed to advertise through (1) business or consumer directories, both in print or online media; (b) websites belonging to the licensed moneylender; and (c) advertisements placed within or on the exterior of the moneylender’s business premises.
Knowing these limitations will help the borrowers to easily spot a loan shark. It is highly possible that the offer is fraud if the moneylender is promoting through flyers, SMEs, emails, social media or other platforms that are prohibited under the MLA.
Terms and conditions of the loan
In any transaction, money lending or not, it’s important that both parties have the same knowledge of the business terms and conditions to avoid future misunderstanding.
In the case of money lending in Singapore, the MLA made it clear that all licensed moneylenders are mandated to properly disclose and carefully explain the terms and conditions of the loan, before granting any loan to a borrower. The agent and the borrower should sign a written agreement that the terms were thoroughly explained and understood.
Failure on the part of the moneylender to disclose relevant information can result in a fine not exceeding $20,000 or to imprisonment for a term not exceeding 6 months or both.
Caps on loan costs
To borrow money, the first step to protect oneself from unexpected charges is to know all the other fees that may arise during the loan tenure.
For instance, the maximum interest rate a licensed moneylender can charge is 4% per month. The cap applies regardless of the borrower’s income and whether the loan is secured or unsecured.
As indicated in the MLA, here are the charges and expenses moneylenders can charge:
- A fee not exceeding $60 for each month of late repayment;
- A fee not exceeding 10% of the principal of the loan when a loan is granted; and
- Legal costs ordered by the court for a successful claim by the moneylender for the recovery of the loan.
With any loan, the total of the charges imposed by moneylenders should not exceed the amount equivalent to the principal of the loan. The charges may consist of interest, late interest, upfront administrative and late fees.
Caps on loan amount
One common question that comes to mind when one intends to borrow money, is how much is the maximum loan amount they are allowed to take. With regard to the secured loans, the law stated that the borrower is given the privilege to obtain any loan amount possible. On the other hand, here are the options and maximum loan amount you can get with an unsecured loan:
|Borrower’s annual income||Singapore Citizens and Permanent Residents||Foreigners Residing in Singapore|
|Less than $10,000||$3,000||$500|
|At least $10,000 |
and less than $20,000
|At least $20,000||6 times monthly income||6 times monthly income|
Statement of accounts
Every legal transaction should have receipts and signed documents. Having these papers will not only prove that the agreement has been recorded and made official, hopefully the papers should also clear all the gray areas and will give the both parties the peace of mind.
All licensed moneylenders are mandated to send out individual statement of account to all the borrowers, at least once every half year ending on 30th June or 31st December and not later than 21 days after that date.
The statement of account should be free of charge and sent by pre-paid post anywhere in Singapore, or by electronic communication such as email, as specified by the borrower.
Behavior of the moneylender
Verifying whether the moneylender is licensed or not is just one step in determining the credibility of the lending company. Educating oneself about the things that shouldn’t be done and asked by a licensed moneylenders, will prevent unwanted troubles.
According to the MinLaw, licensed moneylenders are prohibited from:
- Using abusive language, or behave in a threatening manner towards the borrower.
- Asking for SingPass user ID and/or password.
- Retaining NRIC card or any other personal ID documents (e.g. driver’s license, passport, work permit, employment pass, or ATM card).
- Ask to sign on a blank or incomplete Note of the Contract for the loan.
- Grant a loan without giving the borrower a copy of the Note of contract for the loan and/or without properly explaining to you all the terms and conditions.
- Grant a loan without exercising due diligence (e.g. approving a loan over the phone, SMS or email before even receiving your loan application form and supporting documents, such as the income tax assessment and pay slips).
- Withhold any part of the borrower’s principal loan amount for any reason.
Privacy of borrowers data
Personal information should be treated like an expensive possession. In 2018, the MinLaw implemented a provision that would protect the borrowers and to solidify the regulation of licensed moneylenders.
Aside from providing a cap on loans, the MinLaw also mandated Moneylender’s Credit Bureau (MLCB) to protect the integrity, security, and sustain the confidentiality of any borrower’s data and credit reports in their possession.
In Singapore, illegal moneylending is considered as a serious crime. For years, Registry of Moneylenders has been responsible for the registration and regulation of licensed moneylenders in Singapore to ensure the credibility, authenticity, and the safety of the moneylending industry.
As stated in the law, any person who will violate the prohibition shall be guilty of offence and will be given the following punishment:
- In the case where the person is a body corporate, shall on conviction be punished with a fine of not less than $50,000 and not more than $500,000; or (in any other case)
- Shall on conviction be punished with a fine of not less than $30,000 and not more than $300,000 and with imprisonment for a term not exceeding 4 years; and
- In the case of a second or subsequent offence, shall on conviction be punished with a fine of not less than $30,000 and not more than $300,000 and with imprisonment for a term not exceeding 7 years.
To ensure payment of debt or interest rate, licensed moneylenders resort to an authorized debt collection services. Debt collectors are allowed to talk to your family if you’re not around and can even help the borrowers build their repayment plan. However, some debt collectors tend to be aggressive at times.
Knowing the things a debt collector can do and cannot do (as per Singapore’s Code of Conduct) will help the borrower differentiate proper approach from harassment. Examples of harassing behaviors:
- Stalking the borrower or his/her family members
- Calling repeatedly at unreasonable hours
- Openly displaying notices of demand outside the borrower’s residence
- Unenclosed notices of demand to the borrower’s workplace
- Causing a disturbance around the borrower’s residence that affects the peace and order around the area
Note: If a borrower experiences irregularities and harassment, it is highly recommended to report the incident to the authorities and get legal advice. The borrower may contact the Registry at: 1800-2255-529 to lodge a complaint.
Requirements and Eligibility to Borrow from Licensed Moneylenders
The paperwork in applying for a loan from legal moneylenders is relatively lesser than getting loans from traditional banks. But that does not mean the licensed moneylenders are complacent.
1. Personal Information
As a first step, the borrowers should provide these particulars to the moneylender:
- Full name;
- Date of birth;
- Personal identification number;
- Residential address;
- Email address (if any);
- Contact number; and
- Amount of loan applied for.
In case of having a surety, personal information of the surety should also be included.
2. Supporting Documents
To proceed with the loan, here are the supporting documents that must be submitted to the moneylender:
- Proof of the borrower’s total income for the preceding 3 months prior to loan application;
- Utility bills;
- Payslips; or
- Income tax statements.
3. Foreigner loan
- Original valid employment pass;
- A copy of their tenancy agreement;
- Appointment letters from the borrower’s employer; and
- Bank statements.
Things to remember after the loan has been approved
Getting the loan approval is just the beginning of the borrower’s loan journey. To avoid difficulties in the future, the borrower should bear these things in mind:
- Make sure the moneylender delivers the correct principal amount of the loan. The moneylender is only permitted an upfront deduction of a loan approval fee of up to 10% of the principal amount.
- Pay the loan instalments on time to avoid incurring late payment fees and late interest.
- Make sure the moneylender issues a receipt every time you make any repayment towards the loan, and check it for correctness (e.g. name, amount, date).
- Make sure you receive a statement of account for all your loan(s) at least once every January and July, and check it for correctness (e.g. name, amount, date); and
- The borrower should retain all statement of accounts and receipts of payments, as documentation and evidence of payments.
What will happen if you can’t repay the loan?
Ideally, the borrower should repay the loan on time, while complying with the conditions under the loan contract. However, that’s not always the situation for many borrowers. In case of failure to repay the loan, there are few things
Letting the moneylender know about the situation can help both parties to come up with a realistic repayment scheme. For example, the borrower can ask the moneylender for an extension or refinancing plans. However, this option may come with additional fees.
It is best to do this at the early stage of the loan repayment to avoid getting late payment charges.
2. File for Bankruptcy
In the case that the borrower failed to pay a debt amounting to at least $15,000, the best option is to file for bankruptcy. With this, the accumulation of interest charges will be put on hold and bars moneylenders from going on to legal proceedings until the borrower has been relieved from bankruptcy.
3. Debt Repayment Scheme (DRS)
Instead of filing for bankruptcy, the borrower may opt for a Debt Repayment Scheme (DRS) if the total debts do not exceed $100,000. With this, the Official Assignee from the Ministry of Law’s Insolvency Office will assist the borrower to work out a suitable and attainable repayment schedule for all remaining debts within a fixed period of time.
Before taking out a loan, it is best for the borrowers to do their due diligence in assessing their capacity to repay the loan on time. But if applying for the loan is the only option left, the borrower should carefully look at the reputation of the chosen moneylender which you can view from Loan Advisor list of licensed moneylenders in Singapore.
- No matter what reason the client has when borrowing money, one shall not borrow money from unregistered and illegal lending businesses.
- Unlike loan sharks operators, licensed moneylenders are required to inform the Registrar about the identity and credibility of the people working in the management.
- It is highly possible that the offer is fraud if the moneylenders are promoting through flyers, SMEs, emails, social media, or other platforms that are prohibited under the MLA.
- All licensed moneylenders are mandated to properly disclose and carefully explain the term and conditions of the loan, before granting any loan to a borrower.
With hundreds of licensed moneylenders in Singapore, it will be exhausting to check each business site manually. In this case, consulting with a reliable loan comparison directory such as Loan Advisor, can save the borrowers a lot of time and will help them find the most suitable loan option in the market!