The Government of Singapore has imposed curbs on licensed moneylenders in the country to protect the borrowers. These curbs – which have come into effect from October 1, 2015 – cap the amount of fees and interest that moneylenders can charge customers.
The new rules provide that moneylenders can charge an upfront administrative fee of no more than 10 per cent of the principal loan amount. The interest rate cannot exceed 4 per cent per month. Late interest also cannot surpass 4 per cent a month. Moneylenders can charge a fixed late fee on borrowers, limited to $60 a month. There are no other fees allowed. The total borrowing cost cannot exceed 100 per cent of the principal loan amount. Moneylenders were previously able to charge additional fees for a host of things, such as early contract termination and legal costs incurred in recovering loans.
The new regulations also require moneylenders to calculate interest on a reducing balance basis. This means that after a borrower has paid off part of his loan, his interest has to be recalculated and charged on the remaining principal still to be paid.
These controls are aimed to curb unfair lending practices so as to protect consumers who may have no alternative but to go to licensed moneylenders. Borrowers who turn to licensed moneylenders generally belong to the vulnerable segment of the population and might have irregular employment.
There are 170 licensed moneylenders in Singapore, who are governed by the Moneylenders Act of 2008. In order to start moneylender business, one has to register a sole-proprietorship or a partnership, or incorporate a company wherein the principal activity of the business entity is “moneylending” and apply for a moneylender’s licence from the Registry of Moneylenders. The person responsible for the management of the moneylending business is also required to pass the moneylender’s test on the Moneylenders Act (Cap.188) and Rules conducted by the Registry of Moneylenders.