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Apr 7, 2010
REVIEW MONEYLENDING RULES
Legalised loansharking?
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THE Oxford Pocket Dictionary of Current English 2009 defines a loan shark thus: 'Often derogatory, a moneylender who charges extremely high rates of interest, typically under illegal conditions'.
The Moneylenders Act was amended in 2008, and more detailed regulations were introduced under the Moneylenders Rules 2009 to govern the activities of moneylenders.
A major change was in regulations governing interest rates charged by moneylenders. Under the old rules, these were fixed at a maximum of 18 per cent per annum for all types of loans.
But now, the only restrictions are for loans of less than $3,000 to borrowers earning less than $20,000 annually, fixing the interest rate at 12 per cent per annum for secured loans and 18 per cent per annum for unsecured loans.
Moneylenders are now free to determine the interest rates for all other loans. Based on the experience of Credit Counselling Singapore (CCS), the going rate for loans from some moneylenders now averages 15 per cent flat per month or 180 per cent per year.
The regulations also allow the imposition of upfront loan processing charges, penalty and late-payment charges, collection charges and other charges, which can add considerably more to the interest already being charged.
A loan of $10,000 payable by 12 monthly instalments will therefore attract interest charges of $18,000.
In view of the administrative fee deducted upfront plus the way the interest is computed on a flat-amount basis and not based on the reduced outstanding balance, the effective interest rate for such loans could hit 270 per cent.
On top of this, there are additional interest charges for late payment.
While moneylenders are prohibited from 'unsavoury' debt collection tactics, they now operate openly and legally and are imposing interest charges which are surely usurious and excessive by any definition.
It is no wonder that moneylending has become an attractive business, judging by the rise in applications for licences.
While the aim of the regulatory changes may be laudable in making credit available to a wider base, there are many desperate and vulnerable individuals with urgent need for cash and prepared to pay exorbitant charges, which makes them easy prey for exploitation. With high interest charges, lenders can also take on more marginal and riskier borrowers.
The present situation should be reviewed and necessary changes should be made to the regulations.
Kuo How Nam
President
Credit Counselling Singapore
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REVIEW MONEYLENDING RULES
Legalised loansharking?
<!-- by line --><!-- end by line -->
<!-- end left side bar --><!-- story content : start -->
THE Oxford Pocket Dictionary of Current English 2009 defines a loan shark thus: 'Often derogatory, a moneylender who charges extremely high rates of interest, typically under illegal conditions'.
The Moneylenders Act was amended in 2008, and more detailed regulations were introduced under the Moneylenders Rules 2009 to govern the activities of moneylenders.
A major change was in regulations governing interest rates charged by moneylenders. Under the old rules, these were fixed at a maximum of 18 per cent per annum for all types of loans.
But now, the only restrictions are for loans of less than $3,000 to borrowers earning less than $20,000 annually, fixing the interest rate at 12 per cent per annum for secured loans and 18 per cent per annum for unsecured loans.
Moneylenders are now free to determine the interest rates for all other loans. Based on the experience of Credit Counselling Singapore (CCS), the going rate for loans from some moneylenders now averages 15 per cent flat per month or 180 per cent per year.
The regulations also allow the imposition of upfront loan processing charges, penalty and late-payment charges, collection charges and other charges, which can add considerably more to the interest already being charged.
A loan of $10,000 payable by 12 monthly instalments will therefore attract interest charges of $18,000.
In view of the administrative fee deducted upfront plus the way the interest is computed on a flat-amount basis and not based on the reduced outstanding balance, the effective interest rate for such loans could hit 270 per cent.
On top of this, there are additional interest charges for late payment.
While moneylenders are prohibited from 'unsavoury' debt collection tactics, they now operate openly and legally and are imposing interest charges which are surely usurious and excessive by any definition.
It is no wonder that moneylending has become an attractive business, judging by the rise in applications for licences.
While the aim of the regulatory changes may be laudable in making credit available to a wider base, there are many desperate and vulnerable individuals with urgent need for cash and prepared to pay exorbitant charges, which makes them easy prey for exploitation. With high interest charges, lenders can also take on more marginal and riskier borrowers.
The present situation should be reviewed and necessary changes should be made to the regulations.
Kuo How Nam
President
Credit Counselling Singapore
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