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Apr 12, 2010
MONEYLENDING RULES
Protect the vulnerable
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I REFER to last Saturday's letter by the Registrar of Moneylenders, 'Moneylending rules protect borrowers'.
We have always believed that the financial system should be inclusive enough to bring financial services to the wider population, especially those excluded on the basis of lower income. So the amendments to the Moneylenders Act are a welcome move.
However, we also believe that there should be protection at the same time for vulnerable and ignorant individuals. A decision on just how much protection should be accorded is a difficult one. As our earlier letter ('Legalised loan sharking?'; last Wednesday) pointed out, when some moneylenders charge an effective interest rate of 270 per cent a year or more, the situation calls for closer scrutiny and vigilance.
Moneylenders are obliged to tell borrowers only how interest is charged, which could be on a flat basis or on decreasing balances, and how much the interest is. But unlike banks, they do not have to reveal the effective annual rates, a prerequisite to enable borrowers to understand the offer and compare different moneylenders.
The registrar points out that 70 per cent of loans last year by licensed moneylenders were at annual rates of 18 per cent a year or less. Perhaps this figure includes loans from large licensed moneylenders like GE Money whose lending rates are around 18 per cent a year and who account for a large proportion of loans by licensed moneylenders.
We should look more closely at what small and especially new licensed moneylenders are doing.
Even including GE Money, it is clear that at least 30 per cent of loans from licensed moneylenders carry annual interest rates higher than 18 per cent. Based on our informal surveys with Credit Counselling Singapore's clients, the current interest rate charged by some licensed moneylenders averages 15 to 20 per cent flat a month and this is excessive.
The rules currently permit rates akin to what loan sharks charge. Free market competition does not guarantee an equitable outcome for desperate borrowers.
One can argue that individuals are exercising free choice if they accept such exorbitant terms. But there must be a limit beyond which, as a civilised society, we must intercede and say such terms are unconscionable and cannot be allowed, even if there is a willing buyer and seller. The individual will be better off seeking a non-borrowing solution to his problems.
Kuo How Nam
President
Credit Counselling Singapore
MONEYLENDING RULES
Protect the vulnerable
<!-- by line --><!-- end by line -->
<!-- end left side bar --><!-- story content : start -->
I REFER to last Saturday's letter by the Registrar of Moneylenders, 'Moneylending rules protect borrowers'.
We have always believed that the financial system should be inclusive enough to bring financial services to the wider population, especially those excluded on the basis of lower income. So the amendments to the Moneylenders Act are a welcome move.
However, we also believe that there should be protection at the same time for vulnerable and ignorant individuals. A decision on just how much protection should be accorded is a difficult one. As our earlier letter ('Legalised loan sharking?'; last Wednesday) pointed out, when some moneylenders charge an effective interest rate of 270 per cent a year or more, the situation calls for closer scrutiny and vigilance.
Moneylenders are obliged to tell borrowers only how interest is charged, which could be on a flat basis or on decreasing balances, and how much the interest is. But unlike banks, they do not have to reveal the effective annual rates, a prerequisite to enable borrowers to understand the offer and compare different moneylenders.
The registrar points out that 70 per cent of loans last year by licensed moneylenders were at annual rates of 18 per cent a year or less. Perhaps this figure includes loans from large licensed moneylenders like GE Money whose lending rates are around 18 per cent a year and who account for a large proportion of loans by licensed moneylenders.
We should look more closely at what small and especially new licensed moneylenders are doing.
Even including GE Money, it is clear that at least 30 per cent of loans from licensed moneylenders carry annual interest rates higher than 18 per cent. Based on our informal surveys with Credit Counselling Singapore's clients, the current interest rate charged by some licensed moneylenders averages 15 to 20 per cent flat a month and this is excessive.
The rules currently permit rates akin to what loan sharks charge. Free market competition does not guarantee an equitable outcome for desperate borrowers.
One can argue that individuals are exercising free choice if they accept such exorbitant terms. But there must be a limit beyond which, as a civilised society, we must intercede and say such terms are unconscionable and cannot be allowed, even if there is a willing buyer and seller. The individual will be better off seeking a non-borrowing solution to his problems.
Kuo How Nam
President
Credit Counselling Singapore
