STRICTER laws on pawnshops were passed in Parliament yesterday, but some politicians worried they were insufficient to protect people from rogue pawnbrokers.
MPs also voiced concerns about the rise in pawnbroking activity in recent years, asking whether this signalled more financial difficulties among Singaporeans.
Mr Hri Kumar Nair (Bishan-Toa Payoh GRC), Dr Fatimah Lateef (Marine Parade GRC) and Non-Constituency MP Lina Chiam feared that the new Pawnbrokers Bill, which replaces the Pawnbrokers Act, fails to guard against pawnshops giving unfairly low valuations for pawned items.
Under the old laws, unredeemed pawned items would be put up for auction.
If the auction sale price exceeded the item's valuation, the surplus would go to the person who had pawned it.
With auctions now scrapped, pawnbrokers can sell unredeemed items and pocket the surplus gains.
This may incentivise them to depress valuations so as to maximise the potential surpluses they can keep, Mr Nair suggested.
But Senior Minister of State for Law Indranee Rajah said the competition among pawnshops would be an effective check against them offering overly low valuations.
Pawnbrokers who consistently offer low valuations are also likely to suffer reputational damage and go out of business, she said.
She added that only 5 per cent of pawnbroking loans go unredeemed.
Of those, only 10 per cent may yield an auction surplus.
Thus very few people received surpluses under the auction system, whereas the cost savings from removing auctions would benefit the whole industry and its customers, Ms Indranee added.
Responding to questions from Mr Nair and Non-Constituency MP Yee Jenn Jong about why pawnbroking loans have risen - from $856 million in 1993 to $5.47 billion in 2013 - Ms Indranee said this trend depends on the demand for credit and the price of gold.
Most pledges are gold items, she said, and the price of gold has shot up in the past five years.
She added that people pawn items for a variety of reasons.
For those in genuine financial distress, government aid is at hand.
The new laws passed yesterday aim to ensure pawnshops keep up with evolving trends.
Pawnbrokers must now maintain a minimum paid-up capital of $2 million for the first branch and $1 million for each subsequent branch, and put up a higher security deposit for each branch.
They must also take steps to prevent money laundering, among other things.
This article was first published on Jan 20, 2015.
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