by MP for Aljunied GRC, Chen Show Mao
Sir,
Background
When the Moneylenders Act was re-enacted in 2008, its stated objectives were to facilitate moneylending in the modern credit economy, and to strike a proper balance between regulating licensed moneylenders and safeguarding the interests of borrowers.
In liberalising the market, many of the controls under the old Act were relaxed. Importantly, the interest rate caps were removed except for 18% for unsecured and 12% for secured loans of up to $3,000 granted to low-income borrowers.
Current Situation
Just 3 years after the Act took effect, the results of the liberalisation appear to be trending clear. The number of licensed moneylenders increased from 173 in 2008 to 249 in 2011. The press reports that interest rates are as high as 240% a year, and effective rates could be even higher. And even though some interest rate ceilings are in place, the press reports that debtors are often subjected to additional high charges under ‘Permitted Fees’. These include fees for loan administration and late payment charges.
According to press reports, the Registry of Moneylenders received 67 complaints in 2010, up from 16 the year before. Most complaints were about the high interest rates, strong-arm debt collection methods, and unfair loan terms and conditions.
Call for Further Action
The government has recognised that more action needs to be taken. It has implemented new rules to regulate the advertising and other activities of licensed moneylenders. It has imposed the fit and proper test and Written Test. There is now a Bill before Parliament to increase some enforcement powers.
In addition to these measures, would the government consider additional substantive regulations of the interest rates and fees charged by the moneylenders?
Sir, the high interest rates and fees and number of complaints reported seem to suggest that this segment of the credit market, for whatever reason, may not be functioning well to deliver benefits to its participants, which include not just the licensed moneylenders, but also the borrowers who turn to them.
Thank you.