LAND SURVEYORS (AMENDMENT) BILL

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LAND SURVEYORS (AMENDMENT) BILL: Order for Second Reading read.

The Senior Minister of State for Law (Assoc. Prof. Ho Peng Kee): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

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Overview of the Bill

Sir, this Bill updates and streamlines the Act and makes related and consequential amendments to the Boundaries and Survey Maps Act, Land Titles Act and Land Titles (Strata) Act. We had consulted the Lands Surveyors Board and the Singapore Institute of Surveyors and Valuers on these amendments.

The Land Surveyors Act was enacted to establish a system of registration of surveyors to meet the demand for cadastral surveys in Singapore. The Boundaries and Survey Maps Act was enacted to provide for the appointment, powers and duties of the Chief Surveyor pertaining to the marking and surveying of lot boundaries; publishing and maintaining survey maps in manual and electronic forms; and establishing a coordinated cadastre. The amendments can be divided into three categories, namely, amendments relating to the land surveying profession, amendments relating to land surveying and some consequential and related amendments.

Amendments relating to the land surveying profession

In tune with the business environment and as part of our free trade agreement obligations, the Bill removes certain restrictions imposed on multi-discipline corporations and partnerships which supply survey services. The Professional Engineers Board and Board of Architects have also abolished similar requirements. First, the requirement that registered surveyors or allied professionals must hold at least two-thirds share in a limited corporation will be removed. Second, it is no longer a requirement that all the directors of a limited corporation must be registered surveyors or allied professionals. And third, the registered surveyor who has control and management of the business of a corporation need not be ordinarily resident

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in Singapore. The amendment is found in clause 7.

At present, the Chief Surveyor is concurrently the President of the Land Surveyors Board. The Bill seeks to separate the functions of the Chief Surveyor and those of the President of the Land Surveyors Board by amending section 4 of the Land Surveyors Act. The Chief Surveyor will continue to oversee, regulate and set the standards required in the conduct of cadastral surveys within the ambit of the Boundaries and Survey Maps Act while the President of the Land Surveyors Board will continue to oversee the professional learning, standards and conduct of all registered surveyors through the Land Surveyors Act. With two persons, there will be better checks and balances in promoting and regulating standards in the surveying profession.

To effect this, the Bill transfers Part IX, on Conduct of Cadastral Surveys, of the Land Surveyors Act to a new Part IIA in the Boundaries and Survey Maps Act.

Sir, we further propose to remove the requirement that Assistant Surveyors be approved and registered by the Land Surveyors Board. This is in line with Government's move to cut rules and reduce business costs. The registration requirement was imposed so that surveyors would employ Assistant Surveyors with the necessary qualifications. However, this is an unnecessary safeguard since registered surveyors are responsible for the cadastral surveys they do. As registered surveyors, they are accountable to the Land Surveyors Board for their work. Allied professionals, such as architects and engineers, do not register their assistants under their Acts. Countries with similar cadastral systems, like Australia and New Zealand, also do not approve and register Assistant Surveyors.

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To foster re-learning and upgrading of the professional knowledge and skills of practising surveyors, clause 5 of the Bill empowers the Land Surveyors Board to introduce continuing professional development as an additional condition for renewal of a surveyor's annual practising certificate. Architects and professional engineers have similar requirements.

A new section 35A is introduced to empower the Land Surveyors Board to appoint a lawyer for any investigation, hearing or appeal conducted by an Investigation Committee or the Board or on an appeal to the High Court. Also, a new section 35B will empower the Board to recover the cost and reasonable expenses related to these disciplinary proceedings from the registered surveyor, licensed corporation or partnership, as the case may be.

_Amendments relating to land surveying
_

Sir, the Bill makes consequential amendments to the Boundaries and Survey Maps Act to enable the electronic submission of survey records and documents by surveyors as part of our e-Government initiative. Currently, the Act only allows hardcopies of survey records and plans to be submitted.

The Bill also empowers the Chief Surveyor to generate new maps from the coordinated cadastre established under section 7 of the Boundaries and Survey Maps Act, and to declare that the new maps supersede the maps published under the repealed section of the Boundaries and Survey Maps Act.

Consequential and miscellaneous amendments

Sir, other related and consequential amendments to the Boundaries and Survey Maps Act are:

First, to decriminalise the failure to give information to a survey officer. This

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is no longer necessary as all the survey districts have been surveyed and the survey maps have been published.

Second, to clarify that assistants employed by registered surveyors may also enter sites to conduct cadastral surveys subject to conditions imposed by the Chief Surveyor. This is because physical measurements on the ground are usually done by assistant surveyors.

Third, to state in the Act what is the current position that registered surveyors are primarily responsible for the accuracy of their cadastral survey plans although such plans have been approved by the Chief Surveyor.

Fourth, to empower the Chief Surveyor to refuse to approve any survey plans if an encroachment has been created by the developer and it has not been resolved. Currently, under the Act, the Chief Surveyor can only refuse to grant approval to a survey plan in two very narrow situations, ie, where subdivision permission has not been obtained and where survey fees have not been paid. Arising from a recent case, to protect the public interest, this amendment seeks to provide an additional ground which will operate in situations where encroachments are created as a result of new developments.

And fifth, to remove the limitation period of one year for surveyors to bear the cost of rectifying errors in their cadastral surveys.

Sir, consequential and technical amendments are also made to the Land Titles Act and Land Titles (Strata) Act to remove the current requirement for registered surveyors to deposit two sets of the strata title plan; one with the Chief Surveyor and the other with the Registrar of Titles. Under these amendments, registered surveyors will need to deposit only one set of strata title plan with the

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Chief Surveyor. This is possible because the Chief Surveyor and the Registrar of Titles are now part of the Singapore Land Authority and their work processes have been integrated. Overall, surveyors will appreciate this streamlining arising from workflow improvements.

Sir, I beg to move.

Question proposed.

Dr Amy Khor Lean Suan (Hong Kah): Mr Speaker, Sir, the Land Surveyors (Amendment) Bill seeks chiefly to streamline and simplify the required procedures relating to cadastral surveys and submission of survey plans for approval by the relevant authorities.

As the Chairperson of the Singapore Institute of Surveyors and Valuers, whose primary objective is to ensure high standards of professional practice among its members, I am pleased that the Act now specifically requires registered land surveyors to fulfill certain minimum continuing professional development requirements before they can renew their practising certificate.

Land surveying has become highly technical and increasingly sophisticated due to rapid advances such as in the area of satellite-based GPS site surveys and digital technology. It is imperative that land surveyors continuously upgrade their skills and competencies; otherwise, they may become obsolete.

Sir, I am also pleased that the Act will be changed to bring the provisions relating to multi-disciplinary professional services, including those of surveying services, in line with those of allied professionals. Essentially, the amendments make it easier for multi-disciplinary firms

who wish to supply surveying services to comply with the requirements under

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which a licence for the firm to provide surveying services will be granted.

For instance, in the case of limited companies, as the Minister of State has noted, there is now no requirement that only a registered surveyor or an allied professional can be a director of the company in order for the Land Surveyors Board to grant a licence to that company. All that is required now is that there is a prescribed number or proportion of directors stipulated in the Articles of Association of the company who are registered surveyors or allied professionals. Furthermore, there is now no requirement that the director of the company who is a registered surveyor must be a resident of Singapore. This move is very liberating and could introduce fresh talent from overseas into the local profession.

Sir, whilst I feel that many of the amendments proposed are progressive, there are two amendments which are of concern to the surveying profession and could impinge negatively on the industry and end users of the surveying services.

First, it relates to the abolishing of registration of Assistant Surveyors. Sir, the present requirement for assistant surveyors to possess the necessary minimum qualifications recognised by the Board and to be registered with the Board has worked well and helped ensure minimum practice standards in the industry. This is because whilst the registered surveyor is ultimately responsible for the survey, the assistant surveyors are crucial in the surveying job as they are the ones who undertake and supervise the bulk of the on-site work.

Sir, abolishing the requirement for the registration of assistant surveyors is akin to telling a brain surgeon that he does not need to have a qualified nurse in the

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operating theatre or a professional civil engineer that he can do without a qualified clerk of works in a major subterranean operation. Registered land surveyors, when faced with a credit crunch during a downturn, may be tempted to cut costs by hiring assistant surveyors without the prerequisite knowledge or skills since he is now allowed to do so under the proposed amendments. Of course, surveying work is not life threatening, and the medical analogy might not be the most apt, but the outcome of land surveying work has significant impact on land disputes, title issues, and property prices - all matters of concern to the ordinary Singaporeans. I see the amendment as a step back in the maintenance of high professional standards in surveying practice.

Sir, the Bill seems to send out conflicting signals. On the one hand, CPD is now stipulated as one of the requirements for the renewal of a registered surveyor's practising certificate. This would help uphold professional practice standards in the face of rapid technological changes. Yet in the same Bill, registration of assistant surveyors is now to be abolished to the potential detriment of professional standards. I believe the cost of providing a registration system for assistant surveyors will be more than justified by the downside of significant costs, delays and inconvenience to all stakeholders, including home owners, that could result from surveying errors. Registration is but a small price to pay. If this Bill were to be passed without amendments made to the proposal to abolish the registration of assistant surveyors, then, at the very least, I would like to urge the Minister to consider including in the Cadastral Survey Directive issued by the Chief Surveyor from time to time to require registered surveyors to employ assistant surveyors who have certain prescribed minimum qualifications. This would help maintain some minimum standards among assistant surveyors

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employed in the industry. Otherwise, anyone, including a foreign work permit holder, could become an assistant surveyor under the proposed amendments.

My second point relates to the repeal of Part IX which relates to conduct of cadastral survey. The Bill states that Part IX of the present Act is to be repealed and re-enacted with minor amendments in the Boundaries and Survey Maps Act. Under its present form, section 39(3) of the Act provides for two circumstances under which the Chief Surveyor may withhold approval of any plan, as has been reiterated by the Minister. These are (1) if the subdivision permission, as required under the Planning Act, has not been obtained, or (2) when the survey fee payable has not been paid. Section 39(3) is to appear as section 11D(3) in the Boundaries and Survey Maps Act. The two circumstances are now spelt out under sections 11D(3)(a) and (3)(b). In addition to these two circumstances, there is now a new circumstance stipulated under which the Chief Surveyor may withhold approval. This is section 11D(3)(c) which states that approval may be withheld if the registered surveyor has not certified that any encroachment created by the purchaser or owner of a parcel of land being surveyed has been resolved. This new provision appears to have been included due to the recent encroachment issues highlighted by that of Escada View, a housing development built by the bankrupt Grandlink Group.

Sir, the new provision would seem to imply that the Chief Surveyor may withhold approval for any encroachment which has not been resolved, regardless of whether it is a new encroachment or one arising from an existing structure. Furthermore, this section seems to place the onus of resolving the encroachment issue on the registered surveyor since approval may be withheld if the registered surveyor has not certified that the encroachment has been resolved.

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Sir, it would be relatively easy to resolve new encroachments of, for example, a developer building a boundary wall which encroaches onto an adjoining piece of land. This is because the party responsible for the encroachment is easily identifiable. In such instances, the developer responsible for the encroachment under common law would have to tear down and rebuild the boundary wall. However, if the encroachment is due to an existing structure, such as a retaining wall or boundary wall which was built even before the new developer or owner came onto the scene, determining the party or parties responsible for such encroachment could be cumbersome. Investigations would have to be made to determine if construction was done jointly with the existing or previous neighbours or was previously required by the authorities. Furthermore, complications can arise. In the case of a non-structural boundary wall, which was built long ago, at a time when building plan submissions for the erection were not required, there could be no record of encroachment in the land registry. In such instances, only the courts can determine with finality who created the encroachment and how it can be resolved.

Resolving such encroachment issues would be beyond the scope and responsibility of the registered surveyor. The registered surveyor's professional duty would be only to determine if there is an encroachment and to highlight such encroachments to the developer and the authorities. It would be grossly unfair to place the onus of resolving such encroachment issues on the registered surveyor, which the proposed new subsection seems to do. If a development has been completed on land with encroachment, completion of sales for all subdivided units will be delayed if the Chief Surveyor does not approve the

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certified plan, even though the encroachment may only affect one of the subdivided lots and not all the subdivided lots in the development. Purchasers of units on the subdivided lots could be inconvenienced. More importantly, they face the prospect of incurring extra costs as a result of the delay in completion of the sale and purchase. The developer could also face legal action by all purchasers of the development for the delay in completion of the sale and purchase.

Sir, for such complex encroachment issues, which cannot be quickly and easily resolved, the Act could allow the certified plan to be approved and the encroachment registered with the land registry. In this way, purchasers whose subdivided lots are not affected by the encroachment can complete their sales, leaving only the affected purchaser and/or the authorities and the developer to resolve the encroachment issues.

Sir, in conclusion, I would like to urge the Minister to look into these two areas of concern arising from the proposed amendments which I have highlighted and make provisions to overcome the possible negative repercussions, if not in the Act itself, then at least in the Cadastral Survey Directive issued by the Chief Surveyor from time to time.

With these suggestions, I support the Bill.

Assoc. Prof. Ho Peng Kee: Mr Speaker, Sir, I thank Dr Amy Khor for supporting the Bill. Indeed, as she says, the Bill will introduce processes that will improve and streamline the surveying profession, both its regulation as well as the processes of surveying.

Sir, let me address Dr Khor's two points. Her first point is that, with the

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doing away with the registration of assistant surveyors, that may lead to a drop in standards. Sir, I think Dr Khor's point can be met with two checks that are in place. Sir, the first check is, as Dr Khor quite rightly points out, that the registered surveyor under the Land Surveyors Act remains primarily responsible to the Chief Surveyor. As a professional, he is accountable for what he does. So following the practice of allied professionals like the architects and engineers, where their assistants are not required to be registered, the amendment is now made to also do away with the registration of assistant surveyors. Because, essentially, the assistant surveyors work under the guidance, direction and supervision of the registered surveyors. So that is the first key point. It is ultimately the professional responsibility of the registered surveyors, whom I am sure will be as concerned as anybody else, to engage assistant surveyors who are adequately trained and who will do the job, especially in terms of field work.

The second point is that these assistant surveyors do survey work on the ground. Before they do that, in fact, their qualifications will be monitored, and this point is something that we would assure Dr Khor. Before they can do that, their names will be submitted by the registered surveyors so that the Chief Surveyor can issue them authority cards. And, in fact, a SOP has been in place to ensure that the entry of land is properly done with notification and authority cards. So at that point in time, the Chief Surveyor's Office will look at the qualifications. That is the assurance that the Chief Surveyor has given me, because I am as concerned as her, that standards should not drop. The Chief Surveyor will monitor the academic qualifications of the assistant surveyors doing the survey and the standard will not drop below the current standard.

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For good measure, indeed, the Chief Surveyor will publish these minimum qualifications in a Directive on Cadastral Survey that he would be publishing. I think this is the first point, ie, the work of the assistant surveyors is important. With this amendment, the work would still be properly done.

Sir, the second point is why there is an amendment to empower the Chief Surveyor not to grant approval of the survey plan if there is an encroachment that has been created as a result of new boundaries created by a development for which a survey plan has been submitted. As Dr Khor rightly pointed out, this amendment has been made in the light of a recent case where unwittingly some purchasers had bought units in a condominium and, unfortunately, because the developer had gone insolvent and, in fact, even though the developer knew about the encroachment, because the survey plans were approved, they could take out Certificates of Title and therefore they could issue titles to the sub-purchasers. And so under the law, SLA in fact went against the sub-purchasers to pay for the land upon which the encroachment, in this case, a retaining wall, was built. Hence, the approach therefore is that, in the public interest, it is better really to resolve these encroachments upfront rather than, for example, the suggestion by Dr Khor is to give notice of encroachment to sub-purchasers, and if sub-purchasers buy with notice of encroachment, they will take it with notice. But then you do not resolve the problem upfront. The question of the parties' rights can surface later on and can sometimes result in litigation.

So, rather than do that, arising from the experience of this case that we had, the approach is to try to address the problem at source, ie, when the surveyor submits his survey plans to the Chief Surveyor, the onus is now on him. I think

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Dr Khor would agree that a surveyor who does his job would know what is on the ground, because encroachments cannot be hidden. It can be a retaining wall, an overhanging balcony or eave or a pillar to an entrance, and he will notice that. So, it is better for him when he does that - and that is what will happen in practice - to let the developer know, because the developer has engaged him for the job. So, really, the pressure point is not on him as such, but on the developer, because in order for the developer to sell the units, he has to take out Certificates of Title and, to do that, he has to submit approved survey plans.

The onus is therefore on the developer to rectify the encroachment. He can do that in one of three ways. He can, for example, remove the encroachment, if it can be easily removed; or he can apply for a Temporary Occupation Licence from SLA; or buy over the encroached land from the State or, if the adjoining land is private land, then buy it over from its owner. Once the encroachment is resolved in this way, it is clear cut. Any sub-purchaser who buys from him will know that there is no encroachment which can trouble him later on.

We have thought over the alternative approaches very carefully. For example, notice of encroachment is one; giving approval for the survey plan, then getting SLA to enforce against the developer later on is another. But all these are approaches where the horse would have bolted from the stable, and the problem can then arise that can cause problems to sub-purchasers who are really members of the public. So, rather than do that, make the developer, who is a business entity here, responsible for rectifying the encroachment. The surveyor is, in a sense, the point man, because he is a professional doing the survey on the ground. He is the one who will discover the encroachment and, in practice, he will tell his employer, in this case, the

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developer, about it, and then the process should be resolved because, failing which, the survey plans would not be approved.

So, let us work out this approach and see how it goes. As Dr Khor has mentioned, SISV is in close touch with the Chief Surveyor. In fact, there is a very good working relationship. There will be continuing dialogue, and I am sure we can monitor the system so that, should problems arise, we can adjust this process in due course.

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. - [Assoc. Prof. Ho Peng Kee].

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

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HIRE-PURCHASE (AMENDMENT) BILL: Order for Second Reading read.

3.50 pm

The Minister for Trade and Industry (Mr Lim Hng Kiang): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Hire-Purchase Act was first enacted in 1969 in response to the growth of hire-purchase transactions in the 1960s. The main objective then was to protect unsophisticated consumers from harsh and oppressive one-sided provisions in hire-purchase agreements, such as exceedingly high interest rates.

Except for some minor amendments, the Hire-Purchase Act has remained

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unchanged since it was first enacted in 1969. However, Singapore's financial market has since evolved. Consumers now have wider choices of financing. They are better educated and more sophisticated. With proper consumer education, they can make informed choices. As regulators, we promote greater disclosure and transparency to ensure that the market can work efficiently. There is, therefore, a need to update the Hire-Purchase Act to align with these developments.

In 2003, a joint private and public Taskforce, led by the Ministry of Trade Industry, was formed to comprehensively review the Hire-Purchase Act. The Taskforce included representatives from the Association of Banks in Singapore, the Association of Hire Purchase and Finance Companies, the Automobile Association of Singapore, the Consumers Association of Singapore, the Singapore Business Federation and the Singapore Retailers Association. Based on the Taskforce's recommendations, MTI drafted a Hire-Purchase (Amendment) Bill, and conducted public consultations in May and June this year. We received a number of good suggestions and feedback to improve the draft Bill. These have been incorporated into the final Bill.

Key provisions of the Bill

Mr Speaker, Sir, let me now take the House through the clauses in the Bill.

First, the Bill now before the House is designed to achieve certain objectives:

(1) reinforce disclosure and transparency requirements so that consumers have the material information they need to make an informed choice;

(2) balance the interests of consumers and hire-purchase financiers, without imposing excessive compliance costs; and

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(3) facilitate market developments.

This approach is in line with the Government's overall consumer protection philosophy, ie, to promote disclosure and transparency, so that consumers are well-informed and empowered to assume primary responsibility for protecting their own interest. Together with improved efficiency, more flexibility and transparency, the Bill will help to promote a more competitive refinancing market.

Scope of application

Clause 22 of the Bill increases the cap on the value of consumer goods covered under the Act from $5,000 to $20,000. This brings the Hire-Purchase Act in line with the cap on the value of claims under the Consumer Protection (Fair Trading) Act which came into force in March this year. The existing cap of $55,000 on motor vehicles will not be changed, as it is adequate to cover mid-sized family sedan cars that the majority of consumers buy.

Formula for calculation of statutory rebate upon early settlement

The Hire-Purchase Act currently mandates the use of the "Rule of 78" formula when calculating the balance payable upon early settlement of the hire-purchase agreement. This restricts the flexibility of the market to provide for other approaches to calculate the loan balance when the loan is redeemed before maturity. Clauses 3 and 9 of the Bill propose that the use of this formula no longer be mandated. Instead, the market will be free to adopt any formula, so long as it is made known to the consumer upfront, ie, at the time of entering into the hire-purchase agreement.

_Hirer's right to require assignment of hire-purchase agreement
_

In order to help promote a more competitive refinancing market, clause 8

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allows a consumer to require the financier to assign the hire-purchase agreement to a new financier, after discharging his obligations as provided for in early settlement.

_Early settlement, repossession procedures and information provision
_

To improve efficiency, clauses 5, 6, 9 to 13 and 19 provide that the notice periods relating to early settlement, repossession procedures and information provision will be shortened from 14 days to seven business days. This takes into account advances in communications.

_Limitations on terms charges and interest on overdue instalment payments and minimum deposits
_

To allow for more flexibility in the market, clauses 15, 17 and 23 remove the limitations on the terms charges and interest on overdue instalments payable while clause 16 removes the requirement for a minimum deposit of 10% of the cash price of the goods comprised in hire-purchase agreements. When the Hire-Purchase Act was first introduced, the limitations on terms charges and interest rates were introduced for consumer protection. As the retail and credit financing market has developed since then, we should leave to competitive market forces to set the rates. Similarly, the minimum deposit requirement was intended to curb inflation by restricting credit facilities back then. Circumstances have now changed. We should leave financiers to decide on the need for such a deposit, based on their own risk assessment and propensity to bear risk.

_Transparency and disclosure requirements
_

Going forward, to ensure that consumers have the material information they need to make informed choices,

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financiers will be required to disclose upfront any charges and rates to be levied. Clause 23 also provides an amended Second Schedule of the Hire-Purchase Act which lists the minimum information that financiers should provide to consumers, including the effective interest rate and the method for calculating the balance payable upon early settlement or reassignment. Such information will form part of the hire-purchase agreement.

Sanctions and remedies

To lower legal costs for both parties, clause 3 provides for Hire-Purchase Act matters to be dealt with in a Magistrate's Court or a District Court instead of having their cases heard in a District Court only. Aggrieved parties can now decide which court they wish to resort to, depending on the circumstances of their case.

Criminal penalties for the more serious breaches of the Act, especially those relating to fraudulent behaviour, will be retained. The penalties for these criminal offences will be increased to ensure deterrence under clauses 18 to 21. However, offences which are less serious breaches will be decriminalised under clauses 4, 6 and 14. For the requirements pertaining to clauses 4 and 6, it is already the case today that non-compliance with such requirements under the Act renders the hire-purchase agreement unenforceable until the financier fulfils the specific obligations required. For clause 14, the amendment provides that failure to comply with the requirement will be a breach of contract. These should suffice to ensure compliance with the requirements under the Hire-Purchase Act.

Mr Speaker, Sir, the Bill updates the provisions in the Hire-Purchase Act relating to the rights and obligations of

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parties to hire-purchase agreements in the light of significant changes in the retail and credit financing market over the years. It seeks to balance the interests of the consumers and financiers, without undue regulatory compliance costs. The proposed amendments to the Hire-Purchase Act are aimed at improving market efficiency with the removal of a good number of statutory requirements on businesses, enhancing transparency and greater disclosure so as to enable consumers to make informed decisions, lowering legal costs for all and, thus, facilitating a more competitive market environment.

Sir, I beg to move.

Question proposed.

Mr Yeo Guat Kwang (Aljunied): Sir, I rise to support the Bill.

This amendment will enhance disclosure and transparency requirements, so that consumers have access to all relevant information to make an informed choice when deciding to enter into a hire-purchase agreement. I understand that the Consumers Association of Singapore, which has been advocating for such changes to be made to the Hire-Purchase Act for the past two years, is appreciative of the efforts put in by the MTI and the various parties involved in the review. CASE was a member of the MTI task force to review the Hire Purchase Act. By including CASE and other industry representatives in the task force, MTI has demonstrated its consultative approach to industry regulations.

I am glad, in particular, to note that Rule 78, a mandatory formula for calculating interest payments on car loans has been amended, so that financial institutions are now not required under the law to apply this rule on all hire-purchase loans governed by the Act. It is a positive move in improving the hire-

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purchase provisions. Unfortunately, this change has not gone far enough to ensure that consumers need not be disadvantaged by this rule.

As the financial industry is now left with the discretion to apply Rule 78 on an optional basis under the amended law, I would like to urge the industry players to discontinue the use of Rule 78. I hope that the Ministry of Trade and Industry will closely monitor the development and, if need be, consider banning the use of Rule 78 totally in future. The banning of this rule is not new, and it has been done in some developed countries. In addition, I suggest that the US practice for car loans be studied for implementation here. In the US, car loans are transparent, because details of the hire-purchase agreements are readily available on financial institutions' websites.

Sir, over the last few years, credit sales have been on the increase. It is another area of concern for consumers. This is an area that is not regulated, and CASE has seen increasing complaints against retailers who took advantage of this regulatory gap to impose unfair terms on the consumers. I think it is just about right for MTI to look into the possibility and feasibility of extending the Hire-Purchase

Act to cover all consumer credit or introducing a new law to close the gap.

Consumer credits deal primarily with what lawyers call "chose-in-action" rather than with physical goods. Most of the rights and liabilities are created by business and financial institutions, by tweaking the terms and conditions of credit and selling as a glossy bundled product to unsuspecting consumers. The tweaks are glossed over in the marketing pitch.

Businesses are hardwired to keep on changing their terms and conditions and selling their products to unsuspecting consumers without pointing out the

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changes. The consumers are left to pore over the fine print to detect the changes in the basis of presentation. Present laws do not protect consumers sufficiently against such market practices. A recent example is the sale of investment-linked products as "deposit" products. If this state of affairs continues, I fear that consumers will lose faith in the consumer credit industry and consumer finance industry. The industry will suffer as a result in the long term.

I hope MTI will consider these proposals and find a workable solution to solve these problems.

Sir, I support the Bill.

Mr Speaker: Order. I propose to take the break now. I suspend the Sitting and will take the Chair again at 4.25 pm.

Sitting accordingly suspended

at 4.01 pm until 4.25 pm .

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Sitting resumed at 4.25 pm

[Mr Deputy Speaker (Mr Chew Heng Ching) in the Chair]

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HIRE-PURCHASE (AMENDMENT) BILL: Debate resumed.

Question again proposed.

Miss Penny Low: Mr Deputy Speaker, Sir, I rise to support the Hire-Purchase (Amendment) Bill. In consultation with CASE, market players and other agencies, it is timely for the Ministry of Trade and Industry to update the Hire-Purchase Act in line with the current market conditions.

I am especially heartened by the decision to review the monetary limit on goods governed by the HP Act from $5,000 to $20,000. In the current

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consumer credit environment, the $5,000 limit is indeed too low. With consumer credit being marketed to the masses, many high quality consumer goods are now within the reach of the man-in-the-street via hire purchase. Hence, the decision to increase the monetary limit for the HP Act to $20,000 brings it in line with the Consumer Protection (Fair Trading) Act.

Another positive move is the decriminalisation of certain offences, for example, the failure on the part of the financing company to give certain notices required by the Act. Instead, the safeguard is that the hire-purchase agreement may not be enforceable until the financing company remedies the default. This is also in line with our more liberal statutory environment where contractual disputes are resolved in the civil courts without the need to criminalise commercial behaviour unnecessarily.

However, a glaring regret of the amendment Bill is that it missed the chance to discontinue the application of Rule 78 which is commonly used in the motorcar hire-purchase agreements to calculate payments for early redemption of the car loan. Currently, the HP Act requires the financing company to apply Rule 78 to calculate the redemption sum. This was the practice inherited from an era prior to the computer age. The Rule of 78 disproportionately frontloads most interest payment to the early part of the loan period, thus leaving much of the principal sum unpaid. It is an approximate method of calculation which overstates its case by attributing more interest upfront than necessary. In effect, this practice discourages early redemption of loans and refinancing where cheaper credits become available. It is no wonder that in the car industry, refinancing is almost non-existent. This also runs contrary to the

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Government's effort at preaching financial prudence.

In addition, now that we have already moved into the computer age, banks and finance companies can readily calculate the advance loading of interest by the more equitable monthly rest method. It is time for the hire-purchase companies to move and adopt the monthly rest method of calculation. This method, the monthly rest method, is a more accurate and fair reflection of the cost of funds. In fact, in the US and UK, Rule 78 has been banned for sometime. I am glad that the amendment Bill has deregulated Rule 78 as a mandatory method of calculation. However, I hope that the Bill can go further to disallow the very inequitable Rule 78 altogether rather than leaving it as an option which finance companies may adopt. In fact, the chances of finance companies adopting that are very low. It will be naive to expect the finance companies to switch from Rule 78 to the monthly rest on a voluntary basis. This is evident from the fact that the vast majority of HP agreements for car loans exceeding the monetary limit of the present HP Act continue to use Rule 78 to calculate their redemption sum.

There is no mandatory rule to explain why Rule 78 continues to be used in such cases except that there is an unlevel playing field where the terms and conditions of the HP agreements are dictated by the financing companies. I think we should not pass over the chance to address this inequity that affects hundreds of thousands of vehicle owners who are also our consuming public.

The Second Schedule details the information for prospective hirers. This is an excellent move. May I suggest that to boost disclosure and transparency, a compulsory amortisation table be added to this Schedule. The table should have a clear schedule of loans with separate columns to accurately reflect the interest and principal sum payment, repayment, at

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monthly, quarterly or yearly intervals, so that the hirer understands his loan commitments and can compare his cost of the loans more meaningfully. Some banks have been doing this in their mortgage loans. I think it would be a good practice to extend it to all loans.

Clauses 5 and 6 of the proposed Bill seek to amend the notice period within which a hirer has to comply to a written request from a financier. It proposes to amend the notice period from 14 days to 7 business days. In this day and age, where people travel frequently, and there are more demands on an individual's attention, 7 days may be considered a little short for adequate action. While I am for repayment, rapid repayment and settlement, I would also like to know what prompted the Ministry to review this time-line. Has there been an increase in loan defaults? Moreover, there is a high cost to repossession and, in the case of a genuine lapse on the part of a hirer, for example, when the hirer was overseas, he would still have to bear the cost of repossession, which is included on the items on the Fifth Schedule, and some of the costs would include cost of storage, delivery, redelivery and so on and so forth.

When a vehicle is bought, the car dealer and buyer sign a sales and purchase agreement, as well as a hire-purchase agreement. Most buyers, at that point in time, would perceive themselves to be the new owner of the car under the S&P (Sales and Purchase) agreement, while the bank is their financier under the HP agreement. Yet, notwithstanding registration of ownership with the Land Transport Authority, the buyer is not the owner of the vehicle, instead the finance company is the owner and the buyer merely the hirer. The situation becomes more complicated, as I was told that the HP itself may be invalid if the finance company never became the owner of the car prior to the S&P

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agreement, or if the HP agreement might be viewed as a sham device to avoid the registration requirements of the Bill of Sales Act. I understand from the industry that there would usually be a Master Sales Agreement between the finance company and the car dealer by which ownership of the car is passed on to the finance company. But I am not so sure. The Master Sales Agreement would usually apply to the car only when the finance company approves the HP loan. By then, the car should already have been sold to the buyer under the S&P agreement.

So the question is, the car dealer could not have sold the car to the finance company after the same was sold to the buyer. Conversely, if the HP agreement was valid, it would then imply that the S&P agreement was invalid because the car dealer could not have lawfully sold the car twice, first to the finance company and then a second time to the buyer. The validity of the S&P agreement is not mere legal niceties. The Consumers Association of Singapore has seen complainants whose car dealers were wont to enforce the S&P agreement against the consumers when the finance company declined to approve the HP loan. The legal ambiguities surrounding the S&P and HP agreements in the car dealer industry leave much to be desired.

Last, but not least, in this year's Budget Debate, I spoke about the need to rationalise our consumer credit laws. The Hire-Purchase Act is but one facet of consumer credit. In the UK, Australia and New Zealand, the same legislative regime applies to HP, as well as other types of consumer credit transactions. Their laws provide for linked transactions and joint-liability of merchants and financier. Under their consumer credit law, the legal ambiguity that I have just spoken about would not have arisen and the consumer would not be unduly penalised by the S&P agreement if the

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finance company declines to approve the HP loan.

I urge the Ministry to review the legal ambiguities current in Singapore with the view towards finding a workable solution for consumers and the HP industry, especially the car industry. There are many existing models in UK, US, Australia and New Zealand, that we could adapt and adopt from. I hope the Minister would incorporate the suggestions and concerns into the proposed amendments.

With that, I support the Bill.

Mr Lim Hng Kiang: First, let me thank the two Members for their support of the Bill. I would like to address the concerns raised, first on the Rule of 78. As we have indicated in the Amendment Bill, the Rule of 78 now is no longer mandatory and our approach is to leave it to the industry to decide how they want to set the terms for early redemption.

I think Members would agree that there is no free lunch. When a person takes up a hire-purchase agreement, he is contracting to pay, through a series of instalments, what he has contracted. If he opts for early redemption, then by all counts, there usually would be a penalty clause for early redemption. That penalty clause could either be through calculation of the interest or a very direct penalty clause. So, we leave it to the market to set. It is not true that this is an unlevel playing field. The hire purchase market is a very competitive arena, particularly for car loans, and so I could not believe that the cards are stacked against the consumers. There are many hire purchase credit companies out there and the consumers could choose any one of those companies in the market.

Why do we not ban the use of the Rule of 78? I think our approach is just to

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make it no longer mandatory and leave it to the market to decide whether it is monthly rest, daily rest, actuarial method, or if they want to continue the use of the Rule of 78, we leave it entirely to the market. And, if the consumer does not like that rule set by one company, he can go to another company.

The second point raised is whether there ought to be an omnibus consumer credit law. Firstly, I am not convinced that we need an omnibus consumer credit law. Today we have approached this with separate laws for different consumer credit requirements. So, we have the Hire-Purchase Act and other Acts to deal with other critical areas of consumer credit. The example which Mr Yeo Guat Kwang raised about investment-linked products being portrayed differently, I think that comes under the MAS and comes under the financial legislation. So I do not think there is a shortage of rules to deal with all these different products. I do not see the need for an omnibus consumer credit. If there are specific areas or gaps, then I think we should raise this and see where we could deal with it under the various Acts.

Miss Penny Low also raised about having greater transparency by introducing a compulsory amortisation table in the Schedule. Again, I would leave this to the market. If it is best practice, if people feel that the template involves setting an amortisation table, so be it, we leave it to the market to decide. This could be their competitive selling point. I do not think it is necessary for us to make it compulsory that we should attach an amortisation table as part of the Schedule.

On the question of why we change the notice period from 14 days to 7 days, I do not think repossession would come as a lightning bolt. The person must have not paid up all his instalments, and I am sure the financier would have given him

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notice. The question is whether the legal notice period ought to be 14 days or 7 days. Our thinking is to make it a decent period. In this day and age, 7 days is enough for people to convey the notice to the person. I do not think you could say that this would come out of the blue. There would be enough notice through the default of payments and through the various communications with the finance company.

Miss Penny Low also talked about the ambiguities about who is the owner and who is the financier. It is quite clear. If you are entering into a hire-purchase agreement, you are not the owner. The financier is the owner. So I do not think there is any ambiguity at all. If there are ambiguities, I am also surprised that this was not raised during the consultation period and not addressed. But we would take a look at this. I could not imagine that we are in this business of hire-purchase for cars, there are thousands and thousands of transactions, and such a glaring ambiguity remains in the business. I think that would be a really big surprise to me. But I would get my staff to study this. The way I understood the problem, it is very clear. If you are buying a car on hire-purchase, you are not the owner, you are the consumer. The person who is providing the money is the owner.

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. - [Mr Lim Hng Kiang].

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