Strides towards improved borrower protection and increased regulation in the moneylending industry

Introduction

The Moneylenders Act was introduced in 2008 to provide protection to vulnerable borrowers who are susceptible to exploitation by moneylenders. The latest step in this effort is through the implementation of the Moneylenders (Amendment) Act 2018 (the Moneylenders Amendment Act) which introduces changes aimed at:

1. giving better protection to borrowers;
2. strengthening the regulation of moneylenders; and
3. professionalising the moneylending industry.

The changes will be implemented in two phases with the first phase of the amendments becoming effective as of 30 November 2018 – these changes are mainly targeted at meeting the objectives in (a) and (b) above. The next phase of the changes (which is focused on professionalising the moneylending industry) is scheduled to occur in the first quarter of 2019.

This article will discuss the main changes introduced by the Moneylenders Amendment Act.

Better Protection for Borrowers

Aggregate Loan Caps

To prevent individual borrowers from over-borrowing, the Moneylenders Act now prescribes aggregate loan caps to set an overall limit on the total amount of unsecured loans that an individual may obtain from all moneylenders combined. The newly introduced caps are as follows:

1. no more than S$3,000 for a Singapore Citizen or Permanent Resident with an annual income of less than S$20,000;
2. no more than S$1,500 for a foreigner residing in Singapore with an annual income of less than S$10,000;
3. no more than S$3,000 for a foreigner residing in Singapore with an annual income of at least S$10,000 and less than S$20,000; and
4. no more than six times of an individual’s monthly income for all other Singapore Citizens, Permanent Residents and foreigners residing in Singapore.

This is in contrast to the loan caps prescribed under the old regime which only limited the amount of unsecured loans that an individual may borrow from a single moneylender and which did not prevent an individual from taking loans from multiple moneylenders and consequently becoming over-indebted despite the restrictions.

Provision of Information relating to Borrowers

To facilitate the implementation of the new aggregate loan caps, a regulatory framework has been established which requires moneylenders to do the following:

1. obtain a credit report on the borrower from the Moneylenders Credit Bureau (the MLCB) prior to granting any loan;
2. submit accurate information relating to the Borrower to the MLCB; and
3. provide timely updates to the MLCB as and when the borrower repays the loans.

The new framework also requires both the MLCB and licensed moneylenders to strengthen the confidentiality, security and integrity of data pertaining to borrowers.

In addition, a self-exclusion framework has also been introduced to help borrowers regulate their borrowing behaviour and participate in debt assistance schemes. Under this framework, licensed moneylenders are prohibited from making any loans to any individual who has applied for self-exclusion.

The foregoing measures will evidently enable moneylenders to make more informed and responsible lending decisions and consequentially, will afford better protection for borrowers.

Strengthening the Regulation of Moneylenders

Expansion of Registrar’s Powers to Exclude Undesirable Persons

Under the old regime, the Registrar of Moneylenders (the Registrar) had the power to revoke, suspend or refuse to issue or renew a moneylender’s licence if, amongst other grounds, he is not satisfied as regards the qualification, experience or character of an individual applicant or a director, partner or substantial shareholder of a corporate applicant or any person responsible for the management of the moneylending business. With the changes introduced by the Moneylenders Amendment Act, this power has now been expanded to include persons who are currently employed or engaged, or whom a moneylender proposes to employ or engage, to assist in the moneylending business.

Under the old Moneylenders Act, a moneylender had to obtain the Registrar’s approval after a person becomes a substantial shareholder or changes his substantial shareholding. In contrast, pursuant to the Moneylenders Amendment Act, a moneylender is now required to obtain the approval of the Registrar before a person can become a substantial shareholder or change his substantial shareholding.

With the foregoing expansion of the Registrar’s powers, the chances of having undesirable characters entering into the moneylending industry will be reduced.

Prevention of ‘spare licences’

Under the old Moneylenders Act, it was possible for a moneylender to circumvent the regulations by holding ‘spare licences’ which it can use if its original licence is revoked or suspended. Under the new regime, the Registrar can revoke or suspend a licence if a moneylender fails to commence its new business within 6 months upon the issuance of a licence. This will prevent a moneylender who is not actively operating a moneylending business from holding on to a spare licence.

Tightening Requirements on Loan Contracts

The new Moneylenders Act prescribes more mandatory requirements for loan contracts. For example, a moneylender will now be in breach of the Moneylenders Act if the loan contract does not truly specify the late interest rate or fees payable or if the loan contract contravenes regulatory caps on interest, late interest or fees. The Moneylenders Act also provides that if a moneylender breaches the prescribed caps on fees, interest and late interest, the loan contract will not be enforceable and any guarantee or moneys paid out by the moneylender thereunder will not be recoverable in any court of law.

Professionalising the Moneylending Industry

When the second phase of the changes under the Moneylenders Amendment Act comes into force, licensed moneylenders will, amongst other things, be required to:

1. be incorporated as companies limited by shares with a minimum paid-up capital of S$100,000; and
2. submit annual audited accounts to the Registrar to improve transparency and accountability.

Conclusion

In essence, the changes implemented or to be implemented under the Moneylenders Amendment Act will provide safer access to unsecured credit by giving better protection to borrowers and regulating and professionalising the moneylending industry.