Measures to tighten loan curbs on borrowers, introduced via the Moneylenders Act that was passed in Parliament on Monday (8 January) are expected to kick in from the final quarter of this year.
Those earning less than S$20,000 a year may only borrow up to S$3,000 from all moneylenders combined, while those earning above this amount can only borrow up to six times their monthly income, as part of the changes.
Currently, those who earn less than S$20,000 yearly can borrow up to S$3,000 from each moneylender. Those earning less than S$30,000 annually can borrow up to two months’ salary from each moneylender, and those earning below S$120,000 can borrow up to four months’ salary from each moneylender.
Moneylenders will have to obtain credit reports from the Moneylenders Credit Bureau, launched in March 2016, before granting loans to facilitate the new cap. A regulatory framework will be established to ensure moneylenders keep borrower data confidential.
According to the Senior Minister of State for Law and Finance Indranee Rajah, 41,000 people took up loans here in first three quarters of 2017, more than in the whole of 2016. Outstanding loans during the same period amounted to S$339 million.
She noted that the amended laws would help prevent over-borrowing.
Responding questions from some Members of Parliament on whether the new rules could drive more desperate low-income borrowers to unlicensed moneylenders, Ms Indranee said, "They still need help managing their debt. We also want to ensure that the numbers do not grow," although less than 2 percent, or about 610 individuals, of Singaporean borrowers who took up loans between March 2016 and March 2017 had an outstanding balance that exceeded the cap.
There were nine Members of Parliament (MPs) spoke during the debate on the Bill on Monday.
Nee Soon MP Lee Bee Wah questioned whether the new cap will lead to even more underground moneylending activities and at even more cut-throat rates for desperate borrowers, asking, "Will the government enhance the penalties for anyone caught operating an illegal moneylender joint? Will those reaching the cap be asked to attend credit counselling?"
Responding to this, Ms Indranee said that penalties for unlicensed moneylending were increased in 2010, and offenders face up to six strokes of the cane, saying, "The government takes the view that the current penalties are sufficient."
Ms Indranee said that to complement the implementation of the loan cap, the Moneylenders Credit Bureau will be sending letters to over-indebted borrowers who are likely to exceed the cap when it comes into effect, advising them to reduce their debt early.
She also said that the letter will also contain details of Voluntary Welfare Organisations that can assist borrowers with financial counselling and debt management.
Non-Constituency MP Daniel Goh of the Workers’ Party asked whether the Government may be "over-tightening" the rules, given unlicensed moneylending cases registered a 10-year low in 2015, saying, "The Ministry could be fixing something that is not broken. In fact, this 'something' is not just not broken, it is working very well in tandem with strict enforcement against unlicensed moneylending."
However, the Minister stated that there is no evidence that a tightening of credit, from recommendations put forth by the Advisory Committee on Moneylending three years ago, pushed more borrowers to unlicensed moneylending, noting that in 2016, there were 550 reports of unlicensed moneylending, which saw 1,100 people arrested, down from the 1,255 arrests made in 2015.
The other concern for the MPs is the proliferation of loanshark advertisements through SMS messages.
Chua Chu Kang MP Yee Chia Hsing told the Parliament that some of his constituents received unsolicited messages from unlicensed moneylenders after they approached licensed moneylenders, asking how government agencies would ensure that licensed moneylenders do not pass customer information to their unlicensed counterparts.
Ms Indranee then said that any licensed moneylender found to have colluded with an unlicensed moneylender will have its license revoked and will be prosecuted under the Moneylenders Act.
Mr Desmond Choo (Tampines) and Mr Louis Ng (Nee Soon) asked whether the MinLaw plans to clamp down on illegal advertising.
Responding to this, Ms Indranee said the police will investigate the identity of the person sending any reported spam message and that they may then contact the telecommunication companies to terminate the SIM cards used.
Other changes passed aim to improve the transparency and accountability of moneylenders and they will be required to incorporate themselves as companies and submit audited accounts to the Registry of Moneylenders annually. There will also be tighter approval requirements on the shareholders and personnel of moneylending businesses.