An advisory committee has proposed some major changes in the regulation of the licensed moneylending industry, including an interest rate cap of 4 per cent per month and a "reducing balance" basis for loan repayments.
The committee announced its recommendations at a conference yesterday, eliciting strenuous objections from moneylenders over the low interest rate. It also suggested late-payment interest be capped at the same rate of 4 per cent, and that no other fees be allowed to be imposed on borrowers.
The 15-member panel, initiated by the Law Ministry in June, also recommended limiting the total amount a person can borrow from multiple lenders to four times the borrower's monthly income, as well as capping loans at $3,000 for those who earn less than $20,000 a year. Chaired by Mr Manu Bhaskaran, director of Centennial Group International, a policy advisory group based in Washington, DC, and adjunct senior research fellow at the Institute of Policy Studies (IPS), the committee made its five draft recommendations at the IPS conference on moneylending.
It requested feedback from conference participants, who comprised moneylenders, grassroots leaders and representatives from voluntary welfare organisations.
Mr David Poh, president of Moneylenders Association of Singapore, told The Straits Times that moneylenders felt the capped 4 per cent interest rate would be "impossible" to work with.
Currently, they charge an interest rate of between 20 and 40 per cent per month.
Law Minister K. Shanmugam, who held a dialogue at the end of the conference, noted the strong feedback over the interest rate and assured participants the committee would review the figure.
"The data that the committee worked on showed that moneylenders should be able to make a decent profit out of it. But I think a fair bit of feedback was given that it's actually very difficult," said Mr Shanmugam, who is also Minister for Foreign Affairs.
He urged moneylenders to provide data on why a 4 per cent rate cap would not work for them.
He said a cap was necessary to protect vulnerable borrowers with little knowledge or leverage.
But moneylenders told The Straits Times they do not cater to such low-income borrowers.
"With the current effective interest rate capped at 20 per cent for a low-income borrower, I would be making very little per month for a loan of $500," said a moneylender, who gave his name only as Mr Ng. "Many of us would turn away such borrowers."
Yesterday, the committee also called for a set of guidelines on acceptable debt-collection prac- tices after noting that harassment of borrowers made up the largest category of complaints received.
It also said the Ministry of Law would consider relaxing current advertising restrictions to allow some advertising in newspapers.
This article was first published on Nov 4, 2014.
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