The History of Money Lending In Singapore
The first Moneylenders ACT (MLA) was first enacted in 1959 as a way to safeguard borrowers from money lender interest rates that were ridiculous and to rein in unlicensed money lenders. In recent months, a series of reviews has led to a new slew of changes such as the licensed money lender interest rate.
However, the moneylending industry only truly grown after the 2008 revision to the law that protects both the moneylenders as well as the consumers.
Since then, the Moneylenders Act has often been debated and improved to protect the consumers.
How Has Money Lender Interest Rate Changed Since The Last Review 2015?
Between 2008 and 1st October 2015, money lending was a lucrative business. Licensed Moneylenders were allowed to charge up to 20% maximum effective interest rate (EIR) per year for borrowers earning less than 30,000 per year, while no limits were capped on borrowers who earned more.
In addition, there were no cap on late fee charges and late interest rates charged thus allowing the flexibility of adding additional charges in specific situations.
As a result, there were a huge number of defaults as amounts often snowballed quickly.
However in May 2015, the government announced that they are going to implement new measures that will protect the consumers and yet, allow space for the licensed money lending industry to thrive.
This includes the 4% money lender interest rate cap that aims to dramatically reduce the amount of interest rate any borrower will have to pay. However, to balance that situation, the new ruling introduces a 10% maximum upfront administrative fee to be charge for borrowing (not allowed previously)
The 4% money lender interest rate extends to the maximum late interest rate, which also has a maximum rate of $60 per month.
The additional fees were also removed so that the borrowers would have a better idea of how much they would have to pay based on what they borrowed.
But that’s not all. There will also be new regulatory changes in 2016. But before we start on that, let us revisit how this industry came about.
The Confusion Between Licensed and Unlicensed MoneyLenders
When the industry first started, money lenders were often thought of as loan sharks (or unlicensed money lenders).
However, that’s mainly because these loan sharks were preying on the lack of knowledge from consumers and disguising themselves as part of the legal trade.
However, once you take note of these pointers from Ministry of Law, you can easily differentiate the licensed and the unlicensed ones.
5 ways to Identify Licensed Moneylenders
- They will never ever ask for your Singpass User ID and/or password. Licensed money lenders have access to a database that tells them about your credit history with other money lending institutions.
- They will never retain your IC or any personal ID documents.This is often used by loan sharks so that they can get a leverage over you as they withhold your identity.
- They will never grant you a loan without explaining to you the terms and condition or giving you a copy of the Note of Contract. Licensed money lenders is a legitimate form of business, and like any form of business have to be governed by a piece of contract that is recognized by the law.
- They will never grant you a loan without exercising due diligence. No money lender will approve your loan over the phone or sms as they would require you to sign on supporting documents.
- Lastly, they are not allowed to advertise. So, avoid those companies that sends flyers to your home or sms you to advertise their services.
The Most Recent Change: Singapore Moneylenders Credit Bureau
Borrowers used to be able to maximize their loan amount at different financial institution such as banks and money lending companies. This created problems because individuals were borrowing way over their credit limit.
Plus there wasn’t any system in place to consolidate the available data.
The new Credit Bureau will be handled by DP Information Group. Here’s what Mr Lincoln Teo, Chief Operating Officer of DP Info says about this new initiative:
“The information provided will help promote responsible borrowing. The transparency also means that individuals, when seeking to buy a credit product from a moneylender, will be more likely to take their personal and financial circumstances into account when making their decision. This initiative will eventually see a reduction in the number of defaults. The introduction of the Moneylenders Credit Bureau brings us even closer to a holistic assessment of a borrower’s credit worthiness and repayment abilities.”
Hopefully with this new system in place and implementation of new money lender interest rate, the number of defaults will decrease and encourage individuals to be more responsible borrowers.