New Loan Limits For Borrowers That Has Taken Effect

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On 8th January this year, the Singapore government passed changes to the Moneylenders Act. Borrowers will face tighter loan curbs. This is expected to start from the 4th quarter of the year.

The amended laws are aimed at helping prevent over-borrowing. This is according to the Law and Finance Senior State Minister, Indranee Rajah. This was said by the State Minister amid questions from a number of Members of Parliament. The Members of Parliament wanted clarification on whether these new rules would affect the borrowers. Effects such as driving more worried low-income borrowers to illegal moneylenders.

What Are The Changes?

Some of the changes passed are for example. Borrowers who earn under S$20,000 annually can only borrow a total of S$3,000. These amounts they can obtain from all moneylenders combined. Also, borrowers earning over this amount may only borrow. But a total of 6-times their monthly salary.

At present, those borrowers earning under S$20,000 annually can take out a total of S$3,000. And this amount is from every moneylender. Borrowers earning below S$30,000 yearly can borrow a total of 2 months’ salary. And this is from every legal moneylender. Also, borrowers earning under S$120,000 may borrow a total of 4 months’ salary. Also, this is from every legal moneylender in Singapore.

To help facilitate this new cap, legal moneylenders will need to use credit reports. These they can obtain from the Moneylenders’ Credit Bureau. They will use it to help them issue loans. The Moneylenders Bureau was established in March 2016. In order to make sure that confidentiality is maintained with borrower’s information. There will be a regulatory framework put in place. Meaning moneylender can never share s’ information with any third parties.

According to Ms. Indranee, in 2017, 41,000 Singaporeans made use of payday loans. And that was during the first 3 quarters of the year. And this was more than the number of borrowers in the entire 2016. 80% of this number was made up of both citizens and permanent residents. The existing payday loans amounted to S$339 million in the same period.

Although about 610 individuals– which is fewer than 2 % – of Singaporean borrowers used payday loans. This was for the period running from March 2016 to March 2017. And these borrowers had an existing balance which exceeded this cap. According to Ms. Indranee, these borrowers need assistance in managing their debts. She added the government’s intention to ensure that these numbers don’t grow.

The Debate On The Bill

During the debate, 9 Members of Parliament (MPs) spoke regarding the Bill.

The new cap was questioned. The MP wondered whether this new cap would lead to additional hidden lending actions. The Mp also asked whether the desperate borrower would face much higher rates of the loan. Nee Soon MP Lee Bee Wah asked if the government would step in. And enhance the charges for lenders caught running illegal moneylender joints. The MP further asked whether individuals reaching this cap would have to go for credit counselling.

Ms. Indranee further noted that in 2010 the unlicensed moneylender’s penalties were increased. In addition, offenders faced about 6 cane strokes. She held that the Singaporean government considered the current penalties as sufficient.

In complementing the realization of the new loan cap the Moneylenders Bureau will help. The Credit Bureau of moneylenders will do so by sending letters to over-indebted borrowers. The borrowers are likely to go above this cap once it becomes effective. Ms. Indranee indicated that the Bureau will advise borrowers to lessen their debts early. This letter will contain information about the Voluntary Welfare Organizations. These organizations can help borrowers with debt management and financial counselling.

MP Daniel Goh from the Workers’ Party questioned the rules. And was questioning whether the Government was making the rules more stringent. This was considering in 2015 the cases of unlicensed moneylending recorded a 10-year low.

MP Daniel was held that The Ministry might be fixing what isn’t broken. He insisted that the ‘something’ being fixed was not broken. According to MP Goh, it’s working extremely well. And all this worked together with stringent enforcement against illegal money lending.

In response, Ms. Indranee stated that there was no evidence of the effect of tightening of credit. And this she based on recommendations presented by the Advisory Committee. The recommendations were on Moneylending from 3 years ago. These recommendations didn’t show if more borrowers were pushed to illegal money lending. 550 reports were done in 2016 on unlicensed money lending in Singapore. This saw 1,100 people being put under arrest. This was down compared to the 2015 arrests made of 1,255 people.

Loanshark’s Harassments

The increase of loan shark SMS messages advertisements concerned most MPs.

MP Yee Chia Hsing of Chua Chu Kang spoke of the unsolicited messages. His concern was that some of his constituents were getting from unlicensed moneylenders. And this they got after they visited certified moneylenders. MP Yee Chia Hsing asked about licensed lenders confidentiality. He asked how government agencies could ensure the borrower’s information was protected. And that it couldn’t be passed to the unlicensed lenders.

Licensed lenders colluding with unlicensed will get their licensed canceled. Ms. Indranee further explained that they would be brought to court. And this would be in accordance with the Moneylenders’ Act. Ms. Indranee indicated that police would investigate the people sending these spam SMS. This she said after Mr. Louis Ng (Nee Soon) and Mr. Desmond Choo (Tampines) posed the question. The two MPs asked whether the MinLaw intended to stop illegal advertising. Once the individuals were found out their SIM cards would be terminated. Ms. Indranee indicated that telecommunication companies would be contacted to do so.

There were other changes passed. And all this was aimed at improving the accountability and transparency of moneylenders. This would require the licensed lenders to incorporate themselves into companies. And they would need to present their audited accounts to the Moneylenders’ Registry. The licensed moneylenders would be expected to do so each year. In addition, there will be more stringent approval requirements. This will be on the personnel and shareholders of money lending companies.

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