A moneylender is an individual or company that loans money, secured only by a note as a deed of trust, or against a collateral item or property that is equivalent to or of higher value than the loan given. The main difference from banks and other financial institutions is the high interest rates charge which they say is justify by the risk involve.
Money lending is legal in Singapore. It is regulated by the Money Lenders Act of 2008 and Moneylenders Rules 2009. The government enacted these laws to regulate the money lending industry. This is because it is being taken over by unscrupulous money lenders aka loan sharks who use shady means to conduct their business. The Singaporean government has tried to protect unsuspecting citizens from these loan sharks by providing a modern framework that aims to balance the rights and interests of the borrowers with protecting the lenders from defaulters.
Police take very seriously money lending related harassment cases and have continued efforts to clamp down illegal moneylenders in order bring sanity to that industry.
Interest rates and fees
An earlier study conducted by the National University of Singapore showed that interest rates by money lenders varied widely with some charging anywhere between 5% to over 120% per month. The amount loan varies depending on annual income, the amount loan and length of the loan period. Charges and fees vary widely with some applying a $50 a day for late payments which can average to a whopping $1500 for one month’s delinquency. Some will charge the full principal per day plus interest.
Amendments made to the laws in 2010 sought to regulate the effective interest rates as opposed to nominal interest rates, limited the amount that can be borrowed against disposable income of the borrower, and increased the penalties for illegal money lending which includes jail sentences and caning when one is found harassing borrowers.
The regulator has also protected the borrower by capping interest rates at 4% per month whether the loan is secured or not. The maximum a money lender can charge for late payment is 4% per month for each month defaulted. In addition, late fees cannot exceed $60 for each month defaulted. And the legal fees for loan recovery cannot be more than 10% of principal amount. Total charges cannot exceed an amount that is equivalent to the principal loan.
Moneylenders are not allowed to loan money to students even those who have part time jobs. They are also able to continue loaning money to borrowers who earn as little as $500 a month. However, there is a limit to amount that the person can borrow. This is subject to the borrower’s monthly salary. With lenders limiting loans to salary equivalent or multiplying it.
According to the law, if one’s income is less than $20,000 one can take a maximum of $3,000. While those with between $20,000 and $30,000 can get up to two months income. Those with more than $120,000 can take any amount they desire.The law states that the borrower must present bank statements, pay slips or national identification cards.
The role of the borrower
Despite many efforts by the Singapore government to regulate this industry, there are a few money lenders who break the law. Borrowers are advise to look out for signs of loan sharks. They are also told to register complaints with the Police when they behave in a threatening manner. Loan sharks will also ask for personal details and retain personal documents like NRIC card. They may also try to keep your driver’s license, work permits, ATM cards and any other personal documents. If someone does not formalize the transaction with a contract or try to approve the loan over the phone the borrower should take that as a sign that they are dealing with loan sharks.
Where to report
Borrowers may be afraid of reporting due to fear of harassment by moneylenders. However, the Registry of Moneylenders provides many avenues for anonymous reporting like email addresses and private telephone lines. Documents relating to the transaction should be provided for the officers to be able to carry out investigations. If the moneylender is found culpable, one can pursue the matter in the Small Claims Tribunal. The Court under the Consumer Protection (Fair Trading) Act also handles such matters.
Penalties and Remedies
The Moneylenders Act provides for strict penalties to those found culpable of breaking the money lending laws. For example, unlicensed money lending activity attracts a penalty ranging from $50,000 to $500,000. Individuals face jail terms that include corporal punishment for a first conviction.
Harassment of borrowers attracts penalties ranging from $5000 to $ 50,000 or 5 years imprisonment for first the conviction. Subsequent convictions attract two to nine years jail terms with corporal punishment and fines up to $60,000.
In the event of defaulting by borrowers, unlicensed moneylender cannot sue to recover bad debts in court.
Police reports indicate that the number of borrower harassment cases has been steadily declining since 2009. At the same time, the number of persons arrested for money lending related crimes and harassment has been on a decrease over the last three years. This is a testament that the laws have taken effect. In addition, the Police’s relentless commitment in managing the situation is bearing fruit.
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