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Apr 15, 2010
Capping interest rates won't solve problems
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CREDIT Counselling Singapore president Kuo How Nam ('Protect the vulnerable', Monday) and Mr Paul Chan ('The danger', Monday) said interest rates charged by moneylenders should be capped to protect borrowers.
Their concerns are valid. But is it possible to solve the problems of borrowers by capping interest rates? Mr Kuo's point that 30 per cent of all loans by moneylenders were at interest rates higher than 18 per cent is illustrative. Seventy per cent of loans had rates lower than 18 per cent. The remaining 30 per cent had higher rates.
If interest rates are capped, what will some borrowers who cannot get lower interest rates do and whom will they go to? As Mr Chan pointed out, (desperate) borrowers will agree to any terms.
If money is not available from legitimate lenders, they will turn to loan sharks. Is it not better that they be given some recourse to borrow legally? Registered moneylenders are at least subject to strict rules.
We have tried to be realistic, by not capping interest rates for those who borrow above $3,000. At the same time, we have sought to protect borrowers by putting in a clear, strict regime for moneylenders to observe.
Before granting a loan, the moneylender must tell the borrower of the prescribed terms and conditions of the loan in a language he understands. This includes the applicable interest rate to be charged, how the interest is calculated, and all other charges, such as administrative fees or late payment charges.
The moneylender is also required to give the borrower a copy of the loan contract and provide half-yearly statements of account. These statements must contain details on the principal, interest and permitted fees outstanding, the amount of interest and permitted fees payable and their due dates, and past payments broken down into repayment of principal and payment of interest and permitted fees, if any.
Moneylenders who flout the rules can be fined up to $20,000 or jailed for up to six months, or both; and any interest, late interest or fees that have been paid will be returned to the borrower. Moneylenders who breach the loan contract requirements cannot enforce the contract or recover the loan.
Borrowers have a right to ask moneylenders to explain all the fees and compare interest rates offered by different moneylenders. Where interest or late interest charged is harsh, oppressive or excessive, the borrower can file a claim in the Small Claims Tribunal or the court, under the Consumer Protection (Fair Trading) Act. The borrower can also lodge a complaint with the Registry of Moneylenders.
Wong Lai Yin (Ms)
for Registrar of Moneylenders
Insolvency and Public Trustee's Office, Singapore
http://www.facebook.com/people/Wong-Lai-Yin/626930898
enjoying life in ivory tower?
Capping interest rates won't solve problems
<!-- by line --><!-- end by line -->
<!-- end left side bar --><!-- story content : start -->
CREDIT Counselling Singapore president Kuo How Nam ('Protect the vulnerable', Monday) and Mr Paul Chan ('The danger', Monday) said interest rates charged by moneylenders should be capped to protect borrowers.
Their concerns are valid. But is it possible to solve the problems of borrowers by capping interest rates? Mr Kuo's point that 30 per cent of all loans by moneylenders were at interest rates higher than 18 per cent is illustrative. Seventy per cent of loans had rates lower than 18 per cent. The remaining 30 per cent had higher rates.
If interest rates are capped, what will some borrowers who cannot get lower interest rates do and whom will they go to? As Mr Chan pointed out, (desperate) borrowers will agree to any terms.
If money is not available from legitimate lenders, they will turn to loan sharks. Is it not better that they be given some recourse to borrow legally? Registered moneylenders are at least subject to strict rules.
We have tried to be realistic, by not capping interest rates for those who borrow above $3,000. At the same time, we have sought to protect borrowers by putting in a clear, strict regime for moneylenders to observe.
Before granting a loan, the moneylender must tell the borrower of the prescribed terms and conditions of the loan in a language he understands. This includes the applicable interest rate to be charged, how the interest is calculated, and all other charges, such as administrative fees or late payment charges.
The moneylender is also required to give the borrower a copy of the loan contract and provide half-yearly statements of account. These statements must contain details on the principal, interest and permitted fees outstanding, the amount of interest and permitted fees payable and their due dates, and past payments broken down into repayment of principal and payment of interest and permitted fees, if any.
Moneylenders who flout the rules can be fined up to $20,000 or jailed for up to six months, or both; and any interest, late interest or fees that have been paid will be returned to the borrower. Moneylenders who breach the loan contract requirements cannot enforce the contract or recover the loan.
Borrowers have a right to ask moneylenders to explain all the fees and compare interest rates offered by different moneylenders. Where interest or late interest charged is harsh, oppressive or excessive, the borrower can file a claim in the Small Claims Tribunal or the court, under the Consumer Protection (Fair Trading) Act. The borrower can also lodge a complaint with the Registry of Moneylenders.
Wong Lai Yin (Ms)
for Registrar of Moneylenders
Insolvency and Public Trustee's Office, Singapore
http://www.facebook.com/people/Wong-Lai-Yin/626930898
enjoying life in ivory tower?
