INTEREST RATES CHARGED BY LICENSED MONEYLENDERS

INTEREST RATES CHARGED BY LICENSED MONEYLENDERS: 18.

Mdm Halimah Yacob asked the Minister for Law whether the Ministry will consider introducing caps on the amount

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of interest that licensed moneylenders can levy in view of the exorbitant rates that some are charging their borrowers since the law was liberalised in 2008.

The Senior Minister of State for Law (Assoc. Prof. Ho Peng Kee) (for the Minister for Law): Mr Speaker, Sir, before we amended the Moneylenders Act in November 2008, we had carefully reviewed the issue of whether the interest rate caps for moneylending transactions should be lifted. Interest rate caps may not necessarily protect the borrower, as the moneylender can simply refuse to lend if he judges the risk too high. So if all interest rates were capped, moneylenders would be reluctant to lend to people with higher credit risk, who may then have no choice but to turn to loansharks. It was for this reason that interest rate caps were eventually lifted.

Sir, I should point out that, nevertheless, certain caps remain in place in the Act to protect low-income borrowers earning less than $20,000 annually and who take small loans of no more than $3,000. We know that at times, borrowers with low or no immediate income may need to have access to credit to deal with situations such as family emergencies.

Sir, at the same time that the interest rate caps were lifted, safeguards to protect borrowers were put in place. Firstly, before granting a loan, the moneylender must inform the borrower of all the terms and conditions of the loan, including the interest rate, in a language that the borrower understands. The intent is to enable the borrower to make an informed choice. Secondly, the quantum of unsecured loans is capped at two or four times the borrower’s monthly income, depending on the borrower’s income. This safeguard discourages individuals from spending beyond their means. Thirdly, the moneylender is required to give the borrower a copy of the loan contract and

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provide half-yearly statements of account. These statements must contain details such as the principal, interest and fees outstanding.

Sir, let me emphasise that borrowers have a right to ask, and indeed should ask, the moneylender to explain all the fees. They should also compare interest rates offered by different moneylenders. There are 239 licensed moneylenders listed on the website of the Registry of Moneylenders, up from 221 at the end of 2009.

And, finally, Sir, where the interest or late interest charged is harsh or excessive and the borrower finds the transaction substantially unfair or unconscionable, he can file a claim in the Small Claims Tribunal or the Court under the Consumer Protection (Fair Trading) Act or section 23 of the Moneylenders Act. The borrower can also lodge a complaint with the Registry of Moneylenders, who will investigate and take to task moneylenders who flout the law.

Mdm Halimah Yacob: Sir, I have three questions for the Senior Minister of State. My first question is to ask the Senior Minister of State how does the Ministry monitor licensed moneylenders to make sure that they comply with the law? My second question is: how can borrowers charged with excessive interest rates seek redress? The Senior Minister of State has actually mentioned that they can seek redress at the Small Claims Tribunal. How many such claims have been filed and have been successful? Thirdly, I do believe that borrowers, too, have some responsibility. Could the Senior Minister of State advise this House in what ways we can educate borrowers to know about their own responsibility as well when they borrow money from licensed moneylenders?

Assoc. Prof. Ho Peng Kee: Sir, I thank the Member for the three questions. First,

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on how compliance can be effected. When we amended the Act in November 2008, we also enhanced the Registry of Moneylender (ROM)'s powers. For example, the Registrar is actually very proactive. When complaints are received, together sometimes with the Police, they can carry out raids on the premises, to inspect documents. And, indeed, returns are also required now of the moneylenders, both monthly returns as well as quarterly returns. So, my assurance here is that the ROM realises that once we have a construct given, where we free up interest rates, there is a possibility that some moneylenders may charge high interest rates, the ROM, in this case, a lady, she will have to take more proactive stance in ensuring that the laws are complied with. So, that is my assurance to Mdm Halimah – that ROM will continue to do this.

The second point is on redress. As I have said, a person who is not happy with any aspect of the moneylending contract, including the interest rates, can file a complaint either with the Small Claims Tribunal, which is an easy process, or with the Courts, under either the Consumer Protection (Fair Trading) Act or section 23 of the Moneylenders Act. In fact, the process under the Consumer Protection (Fair Trading) Act was something introduced only last year. So, that is after the amendments in November 2008. The process is there and any aggrieved borrower should use it.

The third point, of course, is a very good point which I think all borrowers must take to heart: prudence in borrowing, both in terms of the reason for borrowing and also the amount that he or she wants to borrow. At the national level, there is this programme called MoneySENSE where there is a national literacy financial programme to ensure that not just borrowers, but even prospective borrowers – because this reaches out to the schools – will know

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what is financial prudence. And, secondly, I think more importantly, the regime that is provided under the amendments, there is transparency and accountability. I think that is a key point. We have modernised the regime to ensure greater transparency. So, the borrower has to take that step – go to the website, where all the moneylenders are listed out, compare rates and make a borrowing that is within his means.