4% monthly interest rate cap for moneylenders

SINGAPORE — Despite moneylenders’ earlier objections, a cap on their interest rates will soon go from 20 per cent for borrowers earning below S$30,000 annually to 4 per cent per month for all borrowers.

This is one of the 15 recommendations announced yesterday to control borrowing costs and protect those who turn to licensed moneylenders. The new rules could be rolled out as early as July, said the advisory committee tasked to review industry regulations.

The limit extends to charges on late payments: A similar maximum interest rate of 4 per cent a month, while late fees will not exceed S$60 a month.

However, moneylenders will be allowed to charge an administrative fee up front, capped at 10 per cent of the original loan amount, for legitimate costs such as securing credit reports.

Currently, there are no restrictions on interest rates for those earning above S$30,000 annually, and none on late fees and total borrowing costs.

Going forward, the total borrowing cost will be capped at 100 per cent of the original loan to keep debts from spiralling. Additional fees for, say, early loan redemption or unsuccessful GIRO deductions will not be allowed.

With regard to borrowers earning more than S$20,000 annually, the new rules will cap their loans at six times their salary from all licensed moneylenders. Such borrowers can currently take a loan of up to four times their monthly salary from each moneylender.

A new Moneylenders Credit Bureau will also provide a centralised, comprehensive database of borrowers who use moneylenders.

Of the 15 recommendations, the Government has accepted 12. Two recommendations — lifting the moratorium on granting new licences and regulating debt-collection behaviour — will be reviewed in time, after the industry adjusts to the changes.

The third recommendation, to allow controlled moneylending advertisements in newspapers, was not taken on board because the Government is cautious about inducing demand through advertising, said Law Minister K Shanmugam.

He told reporters that the new rules are based on fairness and strike a right balance “from the perspective of being fair to the borrower while making sure we don’t kill off the moneylending industry”.

“It’s in no one’s interest ... (to have) no access to credit. The moneylenders can only be in business if they can make some money,” he said.

He added that the recommendations would be implemented progressively, with some, such as the interest rate cap, being rolled out first.

The committee was formed last June after Members of Parliament had raised concerns about the moneylending industry here, particularly on the issue of its excessive borrowing costs.

Committee chairman and Economics Society of Singapore vice-president Manu Bhaskaran said the committee was “equally concerned” about the industry’s viability, as it has a role to play in meeting the needs of “a class of distressed borrowers”.

These groups may be low-income borrowers who need access to credit for emergency payments, or they may be small and medium enterprises facing temporary business disruptions, said committee member and Nanyang Technological University economist Walter Theseira.

“Provided that paying (the money) back doesn’t pose too much of a burden on you and your family, I think that’s a very legitimate need we need to protect in society,” he said.

“We want to make sure ... they don’t end up getting trapped in a cycle of debt as far as possible, that they have some realistic hope of getting out of it.”

Commenting on the impact the recommendations might have on the industry, Mr Bhaskaran, who is also director of Centennial Group International, said: “In any part of the economy, there are always companies that are more efficient than others.

“But we’re very confident that the majority of moneylenders and the moneylending industry as a whole will continue to be not just profitable but attractively profitable, so there will still be a healthy industry.”