Tougher borrowing rules to kick in

A TOUGH new rule affecting people with heavy credit-card and other unsecured debt may profit some moneylenders here.

Mr David Poh, president of the Moneylender's Association of Singapore, expects to see a 20 per cent to 30 per cent rise in lending by licensed moneylenders once the new credit rule kicks in next Monday.

"With their credit facilities suspended, how do you think these people can service their existing debt? They don't have that many choices. Licensed moneylenders are their only source of fast cash," said Mr Poh.

From June 1, borrowers with unsecured debt of more than 24 times their monthly salary will not be able to take out further unsecured loans. Unsecured debt has no collateral.

The rule gets tighter from June 1, 2017, when the limit falls to 18 times the monthly income. It goes down again from June 1, 2019, to 12 times.

The Monetary Authority of Singapore (MAS) has estimated that 32,000 people, as of February, will be affected by the new rule.

It has said financial institutions will have the flexibility not to suspend credit for some affected borrowers during the transitional period, on a case-by-case basis.

Loans from licensed moneylenders are not affected by the new rule yet.

While the first group of borrowers to be affected may be under a mountain of debt, most licensed moneylenders The Straits Times spoke to said they will not turn them away.

"Most of them would have a stable job and they would be working to pay off their debts. So if they have a source of income, we won't turn them away," said one licensed moneylender, who asked not to be named.

Mr Poh said: "These are the type of borrowers that moneylenders like. They earn more than $30,000 a year and have a stable job to service the loans. Before, they would not go to moneylenders because they could get a lower interest rate from the banks."

Under the current moneylending regulations, there is no cap on the amount of interest that moneylenders can charge for loans to those who earn $30,000 and above a year.

But last November, an advisory committee initiated by the Law Ministry proposed some changes to the regulations of the licensed moneylending industry.

The 15-member panel suggested an interest rate cap of 4 per cent a month and a late-payment interest, also capped at 4 per cent a month.

No other fees would be allowed to be imposed on borrowers.

The proposal drew strenuous objections from moneylenders, with Law Minister K. Shanmugam noting the strong feedback and assuring them that the committee would review the figure.

The Straits Times understands that the committee will be finalising its recommendations on Friday.

The delay is worrying, said Pastor Billy Lee, who runs Blessed Grace Social Services, a support group for gambling addicts.

He urged the Law Ministry not to take too long to implement the stricter regulations for moneylenders, so as not to give moneylenders a chance to capitalise on the MAS' new rule.

Mr Lee, who started his support group in 2012, saw at least 80 new cases in the first five months of this year. He said: "I have been getting more and more cases. People who are desperate for money would agree to any terms and conditions set by the moneylenders.

"Perhaps the MAS could have an interim measure to help those who would be affected by the new rule, until the moneylending regulations are revised."

As of last week, only about 400 applications had been approved for the Repayment Assistance Scheme (RAS), an industry-led effort by the Association of Banks in Singapore (ABS), to help heavily indebted people reduce their debt.

However, ABS director Ong-Ang Ai Boon said she expects more people to apply once the borrowing limit takes effect.

One applicant, who wanted to be known only as John, said: "Under RAS, I can pay off my debt at only 5 per cent per annum. But RAS covers only debt in excess of 12 months of my income. At least with RAS, I know that I would be able to clear more than half of my debt by the end of the eight-year instalment plan that has been drafted for me."

The 54-year-old security supervisor, who earns about $3,000 a month, owes almost $80,000 to at least seven banks.

"For the past three years, I have been paying over $1,000 a month to the banks, most of which went to pay for the interest and not the principal sum," said John, a divorcee, who got into debt three years ago after he started visiting the casinos.

Ms Tan Huey Min, general manager of Credit Counselling Singapore (CCS), urged more borrowers to step forward to seek help in managing their debts.

"If the borrower does not think that RAS works for him, he could always approach CCS for alternative solutions, including working out a Debt Management Programme, which is an instalment plan that helps to manage the total debt of the borrower," said Ms Tan.

"Whether a borrower is affected by the new rule next week or later, without a proper repayment strategy and arrangement now, debts will only grow... Borrowing to repay is not a solution."

Since CCS was launched in October 2004, it has done about about 7,800 Debt Management Programmes for overly indebted people.

This article was first published on May 26, 2015.
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