(Delivered in Parliament on 8 January 2018)
Deputy Speaker Sir, the amendments proposed in this Bill aim to protect borrowers from over-borrowing and predatory moneylending practices. This aim is worthy of support. However, I am concerned the Government may be over-tightening the rules, making credit so inaccessible to individual borrowers that they are driven by desperation to unlicensed moneylenders. The main thrust of my speech is to ask that the Senior Minister of State allay this concern through the explanation of specific reasons and facts.
Deputy Speaker Sir, since the Moneylenders Act was enacted, unlicensed moneylending has been brought under control from its heyday in 2009 of over 18,000 cases. The Minister updated this House in August 2016 that unlicensed moneylending cases fell to a 10-year low in 2015, at 4,862 cases. The number of people arrested for unlicensed moneylending activities also fell to around 1,500 in 2015 from close to 2,000 in 2011. This appears to be an achievement of tough enforcement combined with the licensing and regulation of legalized moneylending.
But just as loan sharking and illegal moneylending cases are declining to new lows, the Ministry set up an Advisory Committee on Moneylending to review the regulations and make recommendations. The Ministry accepted 12 of the 15 recommendations advised by the Committee and implemented them in late 2015. The most significant changes were borrowing caps based on income, caps on interest rates and fees and standardized loan contracts.
In principle, it is good for the Government to review regulations after a period of their operation to see what can be done better. But there is also a worry that the Ministry could be fixing something that is not broken. In fact, this something is not just “not broken”, it is working very well in tandem with strict enforcement against unlicensed moneylending. I would therefore like to ask the SMS three questions to allay this worry.
First, while the logic of the tightening, such as pegging borrowing caps to income and caps on interest rates and fees, is hard to disagree with, it is also important that we look at hard data for evidence-based policy-making. Would the SMS please share with the House the number of unlicensed moneylending cases reported and the number of offenders arrested in 2016 and 2017? This numbers could tell us whether the 2015 tightening had the effect of pushing more borrowers to unlicensed moneylending.
Second, the proposed bill will empower the Ministry of Law to go further than the 2015 tightening, allowing the Ministry to set up an aggregate loan cap. In the 2015 tightening, borrowers could borrow up to the loan cap from each moneylender. With the further tightening allowed by the new regulatory framework, borrowers could borrow up to the loan cap from all moneylenders combined. This is quite a drastic tightening of credit. Would the SMS please inform the House what are the new developments on borrowing, new data on moneylending trends that have led to this escalated tightening?
My third question follows from the first and the second questions, and is concerned with the balance of things, between protecting borrowers from over-borrowing and driving them to turn to unlicensed moneylenders, Would the SMS please advise whether the Ministry has studied the probability that this further tightening would drive borrowers to turn to unlicensed moneylenders, and whether the Ministry has the monitoring tools to measure this possible effect?
Deputy Speaker Sir, other than the main point above, I have four other minor points to raise for the SMS to address.
First point. In the 2015 adoption of the Advisory Committee report, two of the recommendations were put on hold to be reviewed later. These are, one, the lifting of the moratorium on granting of new licenses so as to encourage competition and bring down interest rates, and, two, the creation of guidelines for debt-collecting practices so as to further professionalize the industry and distinguish it from unlicensed moneylenders. I would like to ask the SMS whether these recommendations have been reviewed. If they have not been reviewed, whether she thinks it is timely to review them now, given the extensive makeover to prevent over-borrowing and to professionalize the industry.
Second point. One of the recommendations in the Advisory Committee report was that, while no recommendations were made in respect to the location of moneylenders in the heartland, the Committee advised that the Registry should monitor the situation and ensure that it is not aggravated. I would like to ask the SMS whether and how the Registry has been monitoring the situation and whether the Registry decided that it is not currently aggravated.
A research policy report published by the Centre of Banking and Finance Law, at the Faculty of Law, National University of Singapore, in July 2015, shows that more than half of the licensed moneylenders were located in primarily residential areas rather than the commercial areas of town centres. There may be a case for the Ministry to commission a study using current geographical methods to determine whether location matters in encouraging unnecessary and excessive borrowing and thus whether or not the location of moneylenders should be regulated.
Third point. Would the Ministry look into working with the moneylending industry towards standardizing loan products, with guidelines to advertise these products at their premises in a transparent manner? This will further professionalize the industry as well as better fulfill the 2015 recommendation to standardize loan contracts and practices. If I am not mistaken, standardization is currently limited to the standard form used for contracts, which still allows for very flexible contracting terms within the interest rate and borrowing caps. Also, moneylenders have been innovating contracts to sustain predatory practices, and the Registry has been issuing directions and advisories with the burden placed on consumers to monitor and report. Standardization will minimise such predatory practices.
Fourth and last point. Peer-to-peer lending platforms are on the rise around the world and is one exciting bright spot for innovation in fintech. There are some interesting P2P lending start-ups in Singapore such as Funding Societies from Indonesia and the local outfit Moolah Sense, linking up individual investors with SMEs. As far as I know, there are no platforms, legal or otherwise, that are connecting individual borrowers with lenders. But there are risks associated with these potentially disruptive fintech innovations. After all, many individual borrowers could be borrowing from licensed moneylenders because they are shut out from mainstream credit facilities and need loans to manage their cash flow problems in their micro-enterprise business. Is the law currently adequate to tackle the potential issue of P2P lending platforms becoming de facto moneylenders in practice?
Deputy Speaker Sir, as I mentioned at the start of my speech, I support the aim of this bill to protect borrowers from over-borrowing and predatory moneylending practices. My concern is that in the pursuit of good intentions, the Government may be over-tightening, over-regulating, thus shutting out individual borrowers from access to credit lines and driving them to unlicensed moneylenders. This would greatly upset the balance between giving borrowers credit access and clamping down on loan sharks that has been hard won. I hope the SMS would allay this concern. With this caution, I support the bill.