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New aggregate loan limits proposed to prevent borrowers from racking up huge debts

SINGAPORE — To prevent people from racking up a mountain of debt, borrowers will be turned away if they have reached their aggregate loan limits — based on income — under proposed changes to laws regulating moneylenders tabled in Parliament on Monday (Nov 6).

Borrowers will be turned away if they have reached their aggregate loan limits under proposed changes to laws regulating moneylenders tabled in Parliament on Monday (Nov 6). TODAY file photo

Borrowers will be turned away if they have reached their aggregate loan limits under proposed changes to laws regulating moneylenders tabled in Parliament on Monday (Nov 6). TODAY file photo

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SINGAPORE — To prevent people from racking up a mountain of debt, borrowers will be turned away if they have reached their aggregate loan limits — based on income — under proposed changes to laws regulating moneylenders tabled in Parliament on Monday (Nov 6).

Currently, how much one can borrow from each moneylender is capped by income, but nothing stops an individual from taking multiple loans from different moneylenders.

Changes proposed to the Moneylenders Act, expected to kick in from the final quarter of next year if passed, will require moneylenders to check with the Moneylenders Credit Bureau if a borrower has hit the maximum he can borrow before extending a loan. Those who do not do so can be jailed up to six months and fined up to S$20,000.

The new loan limits are:

- For those who earn under S$20,000 a year, up to S$3,000 in total loans;

- For those who earn at least S$20,000 a year, up to the equivalent to six months’ salary.

Moneylenders are barred from offering loans to borrowers who have hit these limits in cumulative loans.

“Borrowers are often those who have exhausted all other forms of credit (such as) bank loans and credit cards, and may not be able to assess loan terms objectively,” said the Ministry of Law (MinLaw) on Monday. “The Government seeks to ensure a safe environment for borrowers to access personal credit from licensed moneylenders.”

Data showed that less than two per cent of Singaporean or Permanent Resident borrowers with loans taken between March last year and March this year have an outstanding loan principal exceeding these aggregate loan limits. “The proportion of current borrowers that will be affected by the new aggregate loan cap is thus expected to be small,” said MinLaw.

The change arose from 15 recommendations made by an advisory committee in 2015, which had found that the existing loan caps could be easily circumvented by borrowers, who could simply turn to other moneylenders after hitting the limit with one moneylender. Currently, those who earn less than S$20,000 yearly can borrow up to S$3,000 from each moneylender. Those earning less than S$30,000 annually can borrow up to two months’ salary from each moneylender, and those earning below S$120,000 can borrow up to four months’ salary from each moneylender.

The committee had said that a “significant proportion” of borrowers might hit the limit and turn to loansharks. Their analysis of borrowers between 2012 and 2013 also showed that a minority were “severely indebted”, with more than nine months’ loan to monthly income (LTI) ratio. The majority did not exceed three months’ LTI.

However, the number of borrowers and the outstanding amount of loans have been increasing over the past three years. While there were 31,000 borrowers in 2014, this figure climbed to 40,000 last year. Outstanding loans also soared from S$239 million in 2014 to S$367 million last year.

Previous changes included the setting up of the Moneylenders Credit Bureau in September 2015. The following month, restrictions on fees and interest rates moneylenders can charge were also implemented.

Other changes tabled on Monday include beefing up the powers of the Registrar of Moneylenders — a public officer appointed by the Law Minister — to bar “unsavoury persons”, such as those with past convictions especially for moneylending offences, from the industry.

Getting prior approval to employ or engage an assistant is a pre-existing condition for the licensing regime, however, this will be “formalised” in the Moneylenders Act.

A moneylender who flouts the rule can lose his licence and be taken to court. The maximum penalty is a fine of up to S$20,000. The authorities can also impose a S$2,000 penalty for every day of unauthorised employment after conviction.

Currently, moneylenders only need to seek the Registrar’s approval after such a person owns more than 5 per cent of shares in the business. The new laws require them to obtain prior approval.

To improve the transparency and accountability of licensed moneylenders, the authorities also want to compel moneylending companies to incorporate as companies and submit audited accounts annually.

There are around 160 licensed moneylenders, and so far, more than two-thirds have also registered as companies. The remaining are sole proprietorships and partnerships.

Between 2012 and 2016, the number of licensed moneylenders fell from 209 to 163. The number of complaints filed against them has also fallen from 271 to 124. These trends reflect the strict enforcement and licensing action by the Registrar, said MinLaw.

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