Regulation on Easy Credit

Mr David Ong asked the Minister for Law (a) how many complaints against easy credit (moneylending) companies have been registered to date; and (b) whether the existing safeguards on interest rates for loan amounts above $3,000 or loans to persons with an income above $20,000 per annum, and penalties for late payments are sufficient to protect the man in street from chalking up insurmountable and often spiralling debts.

The Senior Parliamentary Secretary to the Minister for Law (Ms Sim Ann) (for the Minister for Law): Sir, since 2009, the Registry of Moneylenders has investigated a total of 105 complaints against licensed moneylenders. The Registry has also investigated many breaches that were discovered during regular and ad-hoc inspections and audits.

The Registry takes stern enforcement action against moneylenders who are found to breach the law. To date, seven moneylenders have had their licences suspended; six have had their licences revoked; and four have been prosecuted in court. Warnings have also been issued for minor breaches.

Mr Ong also asks if the existing safeguards are sufficient to protect a person from chalking up spiralling, insurmountable debts. Sir, for the benefit of the hon. Members, I will list some of the safeguards that have been legislated. But before that, please allow me to make a fundamental point. Some individuals do incur insurmountable debts with serious consequences for themselves and their families. This is a matter of concern to the Government. At the same time, there are limits to what the Government can do to protect everyone from getting into a financially difficult situation, or from getting himself or herself into debts that he or she cannot repay.

In the last two years, more than 2,000 persons became bankrupt, borrowing from banks and credit card companies. These companies do due diligence. Yet the borrowers get into financially distressed positions due to a variety of factors. The same goes for people who borrow from moneylenders. The solution is not to outlaw the moneylending industry or impose rules such that moneylenders cannot lend to people who need to borrow – by definition, they lend to people who need loans. If the Government controls the moneylending industry too much, people who can only borrow from moneylenders may resort to borrowing from loansharks.

What the Government can do, and has done, is set out a framework that can work for the majority, allows reasonable access to credit and tries to protect the borrowers within reasonable limits. How we should draw the framework depends on judgements we make on what will and will not work, and the way the market works in practice. We thus need to constantly review the rules and, where necessary, amend them, to make sure that they are working.

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For instance, the purpose of relaxing the rules relating to advertising back in 2009 was to allow the consumer who needs credit, to more easily compare the terms between different moneylenders and choose the best one for his needs. However, having seen how licensed moneylenders have become aggressive in their marketing, we have now considerably tightened the rules on advertising, as we do not want advertising to drive demand for moneylenders.

This is not an end state. We are continuing to monitor and review what is happening. Where we see the market not functioning effectively, and if we believe that consumers can be better protected without cutting off access to credit, we will implement the necessary measures.

I will now set out some of the rules that protect borrowers. First, moneylenders are not allowed to charge borrowers who earn less than $20,000 a year, an interest rate of more than 18% per annum for unsecured loans of $3,000 and below. Second, moneylenders are not allowed to grant unsecured loans of more than $3,000 to such borrowers. Third, moneylenders are not allowed to grant unsecured loans exceeding two times the monthly income of borrowers who earn between $20,000 and $30,000 a year; or exceeding four times the monthly income of borrowers who earn between $30,000 and $120,000 a year.

Sir, I have set out what the Government can do. Ultimately, however, borrowers will have to exercise some judgement – they should assess whether they can repay the loan, and also not take up the loan if the terms and conditions are unreasonable.

Mr David Ong: Sir, I thank Ms Sim Ann for the reply. Given that many who come to these so-called licensed credit companies are in need of money and are desperate, they would probably agree to any term that is on the paper. Worse, they would borrow from multiple credit companies. If they take a loan of $5,000 from each company, and they could easily chalk up a $20,000 loan from four moneylenders. As the interest rates are not capped for those who are earning above $20,000 a year, I think we want to look at how to protect, not so much the borrowers, but the immediate innocent of these borrowers – their families, wives, children, parents and grandparents. I hope that the Ministry can look at an interest rate structure for those earning above $20,000 per annum because they will be exposed as they would agree to anything when they sign.

Ms Sim Ann: Sir, I thank Mr Ong for raising his suggestions and concerns. Indeed, we are monitoring the industry very closely as well as public feedback and we are reviewing the various aspects of how the industry is working. This includes, for instance, the example that he raised: borrowers going to multiple lenders. We will be reviewing how best to strike a balance between protecting the interest of borrowers and yet at the same time maintaining reasonable access to credit.