The regulations that kicked in on October 1, 2015 require licensed moneylenders to cap the cost of borrowing. It also included a reduced interest rate that can be imposed by them. Since then, loans have been subject to the following caps:
- Administrative fee of not more than 10% of the loan principal;
- Interest rate of not more than 4% per month;
- Late interest of not more than 4% per month;
- Late fee of not more than S$60 per month; and
- Total borrowing cost of not more than 100% of the loan amount (principal)
These new regulations have come after several recommendations were proposed by an advisory committee on moneylending in May 2015. Of the 15 recommendations, 12 recommendations were accepted by the Government and the remaining 3 would be reviewed subsequently. The Ministry’s objective remains clear – seeks to ensure a win-win; which is a “balance between protecting the borrowers and allowing the moneylending industry to remain commercially viable”. It appears that there is still market for the licensed moneylending industry as there are still people who do not meet criteria for bank loans. If the former is forced out, borrowers will turn to the “unlicensed” as an alternative source.
Nevertheless, these regulations come in as a measure to prevent debts from spiralling out of control and have instances of debts growing significantly larger than the principal sum. Although the new regulations have caused much apprehension in the industry, it is unlikely to heavily impact the earnings of the lenders as less than 10% of them currently charge interest rates of up to 20%. Additionally, the Moneylenders’ Association of Singapore spokesperson noted that the new controls on interest rates and borrowing costs could see some less efficient industry practitioners phased out.
The Ministry of Law has announced in June 2015 that the accepted recommendations will be progressively introduced. In the next article, we will talk about the new supplement measures that the Registry has rolled out in a bid to deter errant moneylenders from abusing and misleading borrowers.