How Do The Licensed Money Lender New Rules Protect Borrowers?
In recent years, licensed moneylending in Singapore has become an increasingly popular and lawful alternative to taking out a bank loan.
However, with the growth in this sector comes the need to protect borrowers from predatory lenders.
The good news is that in Singapore, there are rules and regulations in place to protect borrowers from unethical licensed money lenders.
As of 2018, the Ministry of Law passed a new regulatory framework for licensed money lenders to operate under.
It’s important to understand how these licensed money lender new rules work, as well as the laws in place to protect borrowers and strengthen the regulations of money lenders.
The Moneylenders Act came into force in the last quarter of 2018 and the first quarter of 2019. In summary, this is what the Act states:
- A licensed lender is not allowed to issue a loan with a higher interest rate than the prescribed rates. Licensed lenders are allowed to charge an interest rate of up to 4%.
- In addition, the amount the lender can lend a borrower is capped at $3,000 for those earning $20,000 or below. Borrowers earning more than $20,000 can receive a loan of up to six times their monthly salary.
- Licensed lenders are required to inform the borrower of the terms of the loan in writing. They must also keep a copy of the loan contract for a period of five years from the date the loan is fully repaid.
- Licensed lenders are also prohibited from making any false advertising. They must clearly state that they are in the business of offering loans, the interest charged, and all the conditions that come with offering the loan.
- Any lender who falsely induces a borrower to take a loan without stating all its terms and conditions is breaking the law.
- A licensed money lender can’t issue a borrower a loan unless he or she first applies for it.
- Licensed money lenders must have signage that clearly shows their name and the words “licensed moneylender”.
- The money lender must supply the borrower with a Statement of Account by sending it via post, or email.
- Licensed lenders are only allowed to charge certain costs and fees when they offer a borrower a loan.
- Each licensed lender is required to submit to the Registry of Moneylenders all the transactions it has entered into during a prescribed period.
- Licensed money lenders are required to appoint an auditor who is a public accountant to make a report on the licensed lender’s financial position.
Licensed money lenders must abide by these rules and regulations that have been established. Below is a summary of the rules.
- A licensed money lender must notify the Registrar of its principal place of business. If the lender intends to conduct its business in two or more places, it must notify the Registrar in writing which of those places it intends to make its principal place of business.
- A licensed lender is required to inform the borrower in writing of the following:
- The interest rate as a percentage and amount of interest
- That the interest will be computed on the monthly outstanding principal
- Fees that are permitted to be charged
- The frequency of installments and the amount of each installment
- The portion of each repayment that will go towards the principal and what goes toward the interest
- The lender should not grant a borrower a loan until it receives a fully completed loan application.
- A loan application should include the following: the name of the borrower; date of birth; NRIC number; nationality; residential address; email address; and telephone number.
- Borrowers are required to authenticate the details provided.
- The licensed lender is allowed to charge a maximum interest rate of 4%. Plus, they can charge the following costs and expenses:
- A monthly late payment fee of no more than $60
- Charge a fee not exceeding 10% of the principal loan amount
- The legal cost of recovering the loan as ordered by the court if the borrower is unable to pay
- A licensed money lender must issue a borrower with a Statement of Account. The statement must contain the lender’s name, address, telephone number, the date on which the loan was given, and the date of every installment paid if it’s a revolving loan.
- The lender must issue a receipt for every payment made by the borrower.
- Receipts should have the borrower’s name and details, loan account number, the amount of payment that goes toward clearing the principal, and the outstanding amount.
What The New Moneylending Regulations Are About
The licensed money lender new rules are aimed at regulating the moneylending industry, weeding out rogue lenders, and protecting borrowers. The regulations aim to:
- Ensure professionalism in the moneylending industry
- Help borrowers to access safe credit
- Prevent borrowers from overburdening themselves with debt they are not able to repay – hence the loan cap is based on one’s income
- Enable lenders to make more informed lending decisions with the introduction of the Moneylenders Credit Bureau, a repository of borrowers’ data
- Allow for self-exclusion to help borrowers regulate their borrowing habits
- Prevent rogue lenders from operating in the market
- Make sure all money lenders incorporate a company limited by shares with a minimum paid-up capital of $100,000
How the Moneylenders Act Protects Borrowers
The Moneylenders Act aims to protect borrowers from unfair lending practices. Here’s how some of its regulations protect borrowers:
- Under the Act, no person should carry out a moneylending business without a license from the Registrar. If a lender has several branches, it will need a license for each branch.
- A lender has to ensure they take reasonable care when offering a borrower a loan. It is required to determine that a borrower is capable of paying the loan granted to them.
- Money lenders are allowed to give loans to borrowers based on their income. Those earning below $20,000 annually can get a loan of up to $3,000. Those who earn more than $20,000 yearly can receive up to six times their monthly salary.
- Before lending to the borrower, the lender must ensure they understand the terms and conditions of the loan.
- A borrower must understand how the interest is calculated, the date when the interest is credited to the loan account, and any other information pertaining to the loan.
- Licensed money lenders are not allowed to harass borrowers when collecting debts. In the event of default, the lender is allowed to use debt collectors, who should follow the rules set out.
- Lenders are allowed to charge an interest rate of 4%. Any lender that charges an interest of more than 4% contravenes the law.
- In the event of default, the total amount of interest, fees, and late interest should not be more than the original amount given to the borrower.
- The late interest should only be calculated on the amount due and not on the paid portion of the loan.
- Lenders are expected to provide borrowers with a Statement of Account at least once a year. The statement should have the lender’s business name, address, and telephone number, the date on which the loan was given, the interest rate, and the interest charged.
Strengthened Regulations For Licensed Money Lenders
To help regulate money lenders, the Moneylenders (Amendment) Rules 2021 came into force in Sep 2021. The licensed money lender new rules include the following:
- A borrower is required to provide documents to authenticate the details in the loan application.
- The Amendment disallows foreign guarantors.
- Foreigners can continue taking loans in their own name.
- Licensed money lenders are no longer allowed to display advertisements targeting vulnerable groups such as domestic helpers.
- The Amendment further prohibits cross-referencing of borrowers from one lender to another.
Additional Measures To Professionalise The Moneylending Industry
Other measures to improve professionalism in the moneylending industry include the following:
- The Registry of Moneylenders regularly monitors licensed money lenders to ensure they are following proper credit practices.
- Companies applying for a moneylending license must comply with certain regulations. This includes the paid-up capital and management protocols.
- The Registry of Moneylenders also approves the lender’s place of business. Business premises must be safe and secure for borrowers.
In short, all licensed money lenders must follow licensed money lender new rules to protect borrower interests.
Before you borrow from a licensed lender, make sure you do your due diligence. Make sure your rights as a borrower are protected. Shop around and find the best lender.