Mandatory cooling-off period for unsecured loans from licensed moneylenders starting Sept 15: MinLaw

All unsecured loans from licensed moneylenders will be subject to a mandatory cooling-off period of three business days from Sept 15, announced the Ministry of Law (MinLaw).

Moneylenders will only be allowed to retain a portion of the loan approval fee, up to the stipulated limits, said the ministry on Monday (Aug 31).

If the principle amount of the unsecured loan is $5,000 or less, licensed moneylenders will only be allowed to retain a maximum of $50.

If the unsecured loan is worth more than $5,000, moneylenders can retain a maximum of 3.5 per cent of the principal, not exceeding the loan approval fee.

As such, there will not be any interest charged, and the total amount to be repaid by the borrower cannot exceed the principal amount of the loan, said MinLaw.

Prior to the ministry's announcement of the cooling-off period, licensed moneylenders were allowed to keep the full loan approval fee, as well as any interest accrued, if a borrower cancels a loan.

Developed in consultation with the Credit Association of Singapore, the cooling-off period seeks to "strike a balance between affording borrowers an opportunity to reconsider their need for credit" and "ensuring that licensed moneylenders are still compensated for the work done when granting a loan", said the ministry.

The new cooling-off period from Sept 15 will give licensed moneylenders time to make the necessary adjustments to their processes and systems during the transitionary period. 

"MinLaw will continue to maintain a balance between protecting borrowers and ensuring that there is reasonable access to credit from licensed sources."

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dana.leong@asiaone.com