How Do The Licensed Money Lender New Rules Protect Borrowers?
December 2, 2022
Imagine paying for a loan you never received or paying inexcusably high loan fees due to a lack of proper regulation. This was the case in Singapore a few years back.
Borrowers faced trouble from greedy money lenders. The poor lending practices also affected the flow of foreign investments to the country. The police and the Ministry of Law kept receiving reports on moneylending scams, despite the money lender rules of the time.
As a result, it was necessary to amend Singapore’s money lender rules. On 16 Nov 2018, the Ministry of Law issued a press release on licensed money lender new rules.
This article discusses these licensed money lender new rules and how they affect licensed money lenders and borrowers in Singapore.
The Moneylenders Act is a set of moneylending regulations enforced by the Ministry of Law in Singapore to ensure better protection for borrowers.
The Act specifies the terms of operation for the Moneylenders Credit Bureau (MLCB), the use and disclosure of borrower information, and related matters. It also sets a restriction on unlicensed moneylending.
As per the Moneylenders Act, one can only carry a moneylending business if authorised by a moneylending license or the Ministry of Law as an exempted or excluded money lender. Also, every money lender branch should have a license.
The Act also specifies that every licensed money lender act reasonably and in accordance with the law to ensure a borrower can repay before giving credit.
The Moneylenders Rules are a set of instructions by the Ministry of Law that reinforce the enactment of the Moneylenders Act 2008.
The Ministry of Law is tasked with creating the rules per the powers conferred by Section 37 of the Moneylenders Act 2008.
The money lender rules comprise instructions on:
- Licensing of money lenders
- Regulation of moneylending businesses
- Unsecured loans
- Miscellaneous provisions such as license revocation
What The New Moneylending Regulations Are About
The 2018 amendments of the Moneylenders Act in Singapore were all about improving Singapore’s moneylending industry through licensed money lender new rules.
The enactment of the amendments occurred in two phases. Phase one aimed to ensure better borrower protection through strengthening the moneylending regulations and began on 30 Nov 2018.
Then from the first quarter of 2019, phase two focused on professionalising the moneylending industry.
How The New Moneylending Regulations Protect Borrowers
Aggregate Loan Capping
This requires all licensed money lenders to set maximum loan limit for borrowers. Loan capping protects borrowers from excessive borrowing and accumulating huge debts.
Before this, there was no cap on how much one could borrow in Singapore based on income. Nothing would prevent a borrower from taking multiple loans from other lenders.
As per the new regulations, the limit is up to $3,000 in aggregate loans for those with an annual income of at least $10,000 but less than $20,000. Those with an annual income of $20,000 and above can have loans up to an equivalent of six months of their salary.
The aggregate loan capping applies to Singaporeans, permanent residents, and foreigners in Singapore.
According to the regulations, licensed money lenders must not offer loans to borrowers who have hit their aggregate loan limits.
Moneylenders Credit Bureau Regulatory Framework
The MLCB protects borrowers by facilitating the implementation of the aggregate loan caps. The bureau also provides updated borrower loan information to licensed money lenders.
The information includes details of the loan type, tenure, and repayment status with licensed money lenders for responsible lending. Ensuring borrower data integrity and confidentiality is also the duty of the MLCB.
The new regulations also help protect borrowers better by allowing them to apply for self-exclusion. Self-exclusion is a facility for borrowers wishing to be barred from taking up more loans with licensed money lenders in Singapore.
It benefits borrowers by allowing them to participate in debt assistance schemes to regulate their borrowing habits. The voluntary self-exclusion framework took effect on 15 Jul 2019. Applications are made through the MLCB.
Self-exclusion commitments last for a minimum of two years and cannot be annulled before the self-exclusion period ends. Third parties or intermediaries can help potential borrowers apply for exclusion only upon receiving consent from the individual.
Licensed money lenders will not offer loans to borrowers who have applied for self-exclusion. This rule applies to Singapore citizens, permanent residents, and foreigners.
For application, one must offer proof of identity and pay a fee of $3 for self-registration or $5 for employer or employment agency registration.
There is no processing fee other than these two fees.
Strengthened Regulations For Licensed Money Lenders
It is a crime to operate a moneylending business in Singapore without a license. The Ministry of Law, through the Registry of Moneylenders, is in charge of license approval, verification, and revocation.
The updated list of licensed money lenders in Singapore is freely accessible to the public and is only updated by the Registry of Moneylenders.
The Registry warns that unlicensed money lenders often masquerade themselves as licensed lenders, only to milk borrowers dry. Thus, borrowers should look out for the following practices of unlicensed money lenders.
- Ask you for your Singpass login credentials
- Use threatening or abusive language
- Retain personal documents such as your NRIC
- Withhold parts or the entire sum of the principal amount citing various reasons
- Offer loans without exercising due diligence like asking for supporting documents
- Make you to sign an incomplete or blank Note of Contract
Under the new regulations, every licensed money lender employing or engaging any assistant in their business should request approval from the Registry of Moneylenders.
This is meant to prevent undesirable parties from entering the moneylending industry through licensed money lenders.
Licensed money lenders in Singapore can only charge a maximum interest rate of 4% monthly, regardless of one’s income or whether a loan is secured or unsecured.
Even when a borrower cannot repay the loan on time, the interest payable per month is still 4%.
The interest rates charged on a loan should be computed based on the principal amount remaining after total payments made by the borrower.
For instance, if you took a loan of $20,000 and repaid $14,000, interest should only be charged on the remaining $6,000. Interest can only be charged if an installment is due to be paid.
Licensed money lenders in Singapore should abide by the following Ministry of Law’s regulations when imposing fees and penalties:
- The monthly fee for late repayment should not exceed $60
- The loan admin fee should not exceed 10% of the principal amount upon loan approval
- The total charges or fees on any loan, including interest and late interest, administrative fees, and fines, should not exceed the principal loan amount
Additional Measures to Professionalise the Moneylending Industry
Rules On Moneylending Advertisements
Most borrowers fall into the trap of unlicensed moneylending due to false advertising. There are rules governing advertising in Singapore’s moneylending industry.
As per the rules, licensed money lenders can only advertise:
- On their own websites
- Inside or outside their own business premises
- In print or online customer or business directories
Any moneylending advert sent through SMS, WhatsApp or emails is proof of a lender violating the rules or operating without a monelending license. The Registry recommends reporting advertising violations at 1800-2255-529 or their website.
Debt Negotiation And Consolidation
A borrower may experience financial difficulties, making them unable to repay their loan. While the Registry may not assist in debt consolidation, several social services agencies may be of assistance.
These agencies usually assist borrowers in credit counselling and negotiating repayment plans. Some of them are:
- Arise2Care Community Services
- Adullam Life Counselling
- Blessed Grace Social Services
- One Hope Centre
- Association of Muslim Professionals (AMP)
Lodging A Complaint Against A Moneylender
The Registry has made it easy to report harassment or concerns in the moneylending industry. You can contact it at 1800-2255 529.
The Registry will not disclose your details to the money lender without your consent. However, to resolve your issue, you may have to sit down for an interview with the Registry’s officers to provide further details and documents.
The Registry takes borrowers’ complaints seriously. It will take necessary actions against errant money lenders.
You can also pursue a legal trajectory concerning a complaint. You can present a case against a money lender to a Small Claims Tribunal or the Court under the Consumer Protection (Fair Trading) Act.
Every borrower must practice responsible borrowing. So following loan approval, remember to:
- Ensure the lender remits the correct principal loan amount
- Make your monthly loan repayments on time to avoid late repayment charges
- Ask for a correct receipt upon making any payment
- Request a complete loan statement of account at least once a year
- Keep your loan documents in a safe place for proof
Licensed Money Lender New Rules In Singapore
The licensed money lender new rules were designed to protect borrowers and licensed money lenders. Like them or not, they are here to stay.
But for them to work, both borrowers and licensed money lender must do their part.