Moneylenders (Amendment) Bill

4.44 pm

Order for Second Reading read.

The Senior Parliamentary Secretary to the Minister for Law (Ms Sim Ann): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." Thank you, Sir, for allowing me to take the House through the Bill at the end of what is proven to be a very long fortnight. Sir, I mentioned in this House earlier this week, that MinLaw is amending the moneylending legislations to further tighten regulation of the industry and better safeguard the interests of borrowers, in particular, lower income borrowers.

We are proposing amendments to the Moneylenders Act in this Bill. We have also made amendments to the Moneylenders Rules. Let me first take the House through the Bill.

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The Bill seeks to: a) strengthen the enforcement powers of the Registry of Moneylenders; b) safeguard borrowers' information from unlicensed moneylenders; and c) clarify the provisions governing moneylenders' place of business.

Sir, section 25 sets out the Registry's statutory powers to inspect the business premises of licensed moneylenders and to require them to furnish information and documents. Clause 4 amends section 25 to allow the Registry to engage any person, for example, auxiliary police officers, to assist the Registrar or an authorised public officer in exercising the Registry's statutory powers. While they will be able to view and make copies of documents being inspected, the power to seize and remove documents or equipment from the premises inspected will continue to be exercised by public officers only. The amendment will enhance the Registry's capacity to conduct more frequent and thorough enforcement checks on moneylenders.

Clause 4 also amends section 25 to give the Registry powers to specify the time, place and manner in which information or documents required by the Registry are to be furnished by the moneylender.

Section 14(1) creates the offence of unlicensed moneylending, and section 14(3)(A) stipulates a non-exhaustive list of activities which are deemed to be assisting in unlicensed moneylending. Such activities include allowing premises to be used for unlicensed moneylending, and collecting or demanding payment of a loan on behalf of an unlicensed moneylender. While the generality of section 14(1) makes all activities which assist in unlicensed moneylending illegal, we propose to make it explicitly clear that it is a criminal offence to share information on borrowers with unlicensed moneylenders. In this regard, clause 3 amends section 14(3A) to include the activity of any person sharing information on a potential borrower with an unlicensed moneylender, or referring a potential borrower to an unlicensed moneylender, as assisting in unlicensed moneylending. A person convicted of the offence will be liable for a fine of up to $300,000 and, depending on whether it is the first or subsequent offence, a maximum of four or seven years' imprisonment and a maximum of six or 12 strokes of the cane.

Section 10(13)(a) makes it an offence for moneylenders to commence their business at a place which the Registry has not approved. Clause 2 amends section 10(13)(a) to make it explicit that it is an offence for moneylenders to carry on their moneylending business at an unauthorised place of business, regardless of when it commenced.

Sir, before I go on to touch on the amendments we are making to the Moneylenders Rules, I will briefly explain the broad rationale for these amendments. Since the Moneylenders Act was amended in 2008, the moneylending industry has grown. We have been monitoring developments and tightened the moneylending regulations last year, through, amongst others, advertising directions and licence conditions.

During the debates earlier this week, I briefly touched on the changes to the Moneylenders Rules to further strengthen protection for borrowers. I will now share with the House in greater detail these amendments, which cover four main areas:

First, mandate the use of Effective Interest Rate; second, extend coverage of caps on interest rate, to a larger group of borrowers; third, remove certain fees from the list of fees which moneylenders are allowed to charge borrowers; and fourth, abolish all exceptions to the limits on the amount of unsecured loans that a borrower can obtain.

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First, we are mandating the use of Effective Interest Rate (EIR), instead of Nominal Interest Rate (NIR), to be the basis for interest rate caps. Currently, there are interest rate caps, based on NIR, of 12% for secured loans and 18% for unsecured loans, for borrowers earning less than $20,000 a year. Henceforth, the interest rate cap of 12% NIR will be replaced by its approximate equivalent of 13% EIR, while the cap of 18% NIR will be replaced by its approximate equivalent of 20% EIR.

Moneylenders will also be required to compute and disclose the EIR of their loan packages to borrowers. This is similar to the practice of banks.

Compared to NIR, EIR takes into account the compounding effect of the number of instalments over a one-year period. This means that EIR better reflects the actual cost of borrowing over a one-year period. Using EIR will also help borrowers more easily compare different loan packages.

Moneylenders who do not provide the Effective Interest Rate of the loan package to their borrowers are liable to a fine not exceeding $20,000, or to imprisonment for a term not exceeding six months, or to both; and in the case of a second or subsequent offence, to a fine not exceeding $40,000, or to imprisonment for a term not exceeding 12 months, or to both.

Second, we are extending the coverage of the interest rate caps to a larger group of borrowers, from applying only to borrowers earning less than $20,000 a year, to those earning less than $30,000 a year. This will apply to both secured and unsecured loans. In other words, for borrowers earning less than $30,000 a year, the interest rate for secured loans that moneylenders can charge will be capped at 13% EIR and for unsecured loans, it will be capped at 20% EIR. Borrowers earning $30,000 or more a year generally qualify for credit facilities from banks, such as credit card facilities, and are not dependent solely on moneylenders for credit. Thus, we have decided not to introduce any interest rate caps for them for now.

Sir, when we lifted some interest rate caps in 2009, our consideration was that by allowing market forces to freely determine interest rates, there would be greater access to credit. This is because the credit profile of some borrowers would make it unattractive for moneylenders to lend to them, if the interest rates are capped and moneylenders cannot charge an interest commensurate with the credit risk. Such borrowers might then turn to loan sharks, putting themselves at risk, and contributing to an increase in unlicensed moneylending activities.

Access to credit remains a key concern for my Ministry. Nevertheless, after reviewing the developments in the industry, we have decided to extend the coverage of the interest rate caps to a larger group of lower income borrowers. We are conscious that in doing so, there may now be some borrowers to whom licensed moneylenders may not be willing to lend at the regulated rates. So this move, which ultimately is a judgement call, is not without its trade-offs.

Even under the current framework, there are people who turn to unlicensed moneylenders, because they cannot borrow from legitimate ones. We need to be mindful that we do not drive more and more people to unlicensed moneylenders. We need to try and give protection to borrowers, without creating a situation where borrowers cannot access credit from licensed moneylenders. This is the balance which we have been trying to fine tune, and will continue to monitor, to help borrowers, in a way which is practical and feasible.

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Third, we are disallowing the charging of three fees currently permitted under the Rules, namely, for acceptance of the loan application, for acceptance or renewal of a revolving credit loan and for any payment not through electronic funds transfer. These fees are typically charged up-front by moneylenders. These fees make the cost of borrowing less transparent and make it harder for borrowers to compare loan packages. These fees also increase borrowing costs.

Apart from these three fees, there are six conditional fees permitted under the Rules. These fees can be charged only if certain conditions arise, for example, upon borrowers breaching or varying the loan contract. These will continue to be permitted.

Fourth, we are disallowing all exceptions to the limits on the amount of unsecured loans that a borrower can obtain. The limits to loan quantum serve to prevent excessive borrowing. However, these exceptions allow individuals to borrow more than the loan quantum caps stipulated in the Moneylenders Rules. For example, borrowers with an annual income of $20,000 or less are not allowed to take unsecured loans of more than $3,000. However, the exceptions have allowed such borrowers to borrow more than $3,000, when they borrow for purposes, such as business or renovation. The exceptions also allow moneylenders to impose interest rates beyond the stipulated interest rate caps. These exceptions can lead to borrowers taking on excessive debt. As such, we are disallowing these exceptions.

Sir, these amendments to the Rules have been approved, but will take effect only on 1 June 2012, to give the industry sufficient time to adjust to the changes.

Sir, I should also share with the House that my Ministry has recently set up an Advisory Committee on Moneylending Issues (ACMI), which I am chairing. The inaugural meeting was held last month. The committee comprises representatives from the Moneylenders Association of Singapore, Credit Counselling Singapore, One Hope Centre and The Silver Lining Community Services. One Hope Centre and The Silver Lining both provide counselling and rehabilitation services for people with gambling and debt problems, and their involvement in the committee will give us insights into providing safeguards against excessive debt. The Committee has two grassroots advisors as members, as well as representatives from MHA, MCYS and MAS. ACMI will provide us with regular advice and feedback on moneylending issues, such as on the effectiveness and community impact of the policies governing the industry and on the most effective way to educate borrowers.

In conclusion, Sir, let me reiterate the Ministry's commitment to regulate the moneylending industry firmly but fairly. We will continue to keep a close watch, and will recalibrate the regulatory framework whenever necessary. Sir, I beg to move.

Question proposed.

4.57 pm

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Assoc Prof Fatimah Lateef (Marine Parade): Thank you, Sir. I support all the four regulatory changes announced by the Senior Parliamentary Secretary. I also support the suggested enhancement to the enforcement processes with added appointed staff, with the auxiliary police being authorised to carry out inspections. I hope with this we can have more frequent and more regular checks. However, I would like to clarify the following:

As it is stated that these additional persons will not be allowed to seize, remove or take any documents and equipment from the premises, then in the event when these are required to be carried out, who and how will it be done? Do these additional persons then have to call the designated officers to come to do it? Will there be delays? My concern is that in the event that this happens and if it needs to be done urgently, and we certainly cannot deny the possibility, especially in this industry, can these persons be given approval under special circumstances to carry this out?

What are the some of the positive developments and the effects of the measures implemented since we last had an amendment to this Bill? Currently, there is still a widespread need to educate our populace on recognition and awareness in order to safeguard them from getting involved in illegal and unlicensed moneylending activities. I have personally come across people who have been cheated by their own family members in relation to unlicensed moneylending activities. This is really a sad situation. Perhaps, this can be included in the public education that the authorities are going to carry out.

Recently, there were also reports of housing agents involved in moneylending schemes. How are we working with the Council for Estate Agencies on this matter? What about moneylenders who advertise using SMSes? What is the Ministry's stand on this? And what is the best way for the public to handle this if they get caught in a situation? Can we also have an update on the recently introduced testing used to assess eligibility and the understanding of moneylenders? Can the Ministry share with us the numbers that have applied, the numbers tested, the numbers passed, and also if the test is available in different languages?

Sir, recently a licensed moneylender – a lady – came to my Meet-the-People session to give me some feedback. Due to the nature of the industry, licensed moneylenders do face a myriad of problems including:

a) being threatened by the borrowers physically, by SMSes and a variety of methods;

b) despite having a letter of authorisation and consent to deduct portions from the client's monthly salary for settlement of loan if they default on payment, which is drawn up by the appointed lawyers, however, it appears both the client and the human resources department of their companies are often not able to assist these people; and

c) issues of cheating and using fake or wrong NRIC. The loans that these legal moneylenders give out are usually not secured loans and they continue to face a multitude of problems daily, according to her.

If the Ministry can help them alleviate some of these issues and problems by having certain regulations and fine tuning, it would certainly help uplift the morale and commitment for them to stay in the industry, as we do need some of them.

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Sir, I support this Bill and it is an important Bill. I appreciate the regular fine tuning and review that are carried out by the Ministry to tighten and regulate the industry.

5.00 pm

Ms Sim Ann: Sir, I thank Assoc Prof Fatimah for speaking in support of the Bill. Let me address her queries and concerns. First, she asked if there could be delays in inspection of moneylenders since those persons authorised by the Registrar to assist in inspections will not be allowed to exercise powers of seizure and removal.

I should have explained that our intention is for these persons such as auxiliary police to be deployed together with the Registry officers during inspections. Where there is a necessity to seize and remove documents and equipment from the premises, the Registry officers will do so there and then. The auxiliary police officers will assist in other aspects of inspection for which they have the powers. These are to: inspect the premise where a moneylender is carrying on his business and the documents kept there, require the moneylender or any other person to furnish any documents, copy any documents inspected and take photographs or video recording of the premises inspected.

Assoc Prof Fatimah talked about the need for educating the population on moneylending and this is something that we agree very much with her. The Registry of Moneylenders has developed a Borrower's Guide which is available in both English and Chinese to educate borrowers on what to look out for when getting a loan from moneylenders. This is available on the Registry's website. The moneylenders are also required to display these at their premises. We will be doing more this year as part of the implementation of the new measures to reach out and educate borrowers. In fact, this is one of the reasons why we have set up the Advisory Committee on Moneylending issues which I have talked about earlier.

ACML members will advise MinLaw on public engagement and outreach efforts to educate borrowers on areas such as the "dos and don'ts" of borrowing from licensed moneylenders, the safeguards under the moneylending regulations that protect borrowers and how to distinguish between a licensed moneylender and an unlicensed moneylender.

Assoc Prof Fatimah also asked about estate agent's roles in referring clients to moneylenders. I understand, Sir, that the Estate Agent's Act disallows estate agents from referring their clients to moneylenders. So, this is disallowed.

Next, Assoc Prof Fatimah also raised some problems that moneylenders could face with errant borrowers. I wish to say here that they do have recourse against errant borrowers under general criminal law and contract law. For example, if a borrower threatens or cheats the moneylender, the moneylender can report the matter to the police.

In instances where the borrower defaults on repayment, the moneylender can take legal action against the borrower to recover the sums. As for potential borrowers presenting fake credentials like banks and other financial institutions, moneylenders must take their own measures to adequately and appropriately assess the borrower.

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Regarding Assoc Prof Fatimah's request for an update on the moneylender's written test, since its implementation on 1 June 2011, Sir, the Registry has conducted more than 300 tests. The passing rate is less than 50%. As for whether the test is available in multiple languages, I would like to mention here that the test is conducted in English only because it is the subject matter of the test, namely, the statutory requirements on moneylenders as set out in the Moneylender's Act and the rules are published in English.

Sir, I think I have covered the key points that have been raised by Assoc Prof Fatimah and I would like to thank her for sharing her ideas and thoughts with the House. Let me reiterate that we would continue to keep a close watch on the moneylending industry and ensure that borrowers are adequately protected.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Ms Sim Ann].

Bill considered in Committee; reported without amendment; read a Third time and passed.

5.05 pm