Borrowing money has become an important industry in Singapore. It has helped thousands of people survive financial crises and difficulties. But, the business of moneylending is not free of problems.
There are loan sharks or “Ah Long” which are illegal lenders who would charge exorbitant fees and who are willing to use violence and intimidation to make sure that they are paid.
To protect the borrowers, the Singapore government, specifically the Ministry of Law, has crafted a guideline that has to be followed by all legal moneylenders in the country.
What Is the Moneylenders Act and How Does It Work in Singapore?
The Moneylenders Act was first enacted in 2008 and was later revised in 2010. It contains the regulation of money lending as well as detailed rules on how a credit bureau must collect, use, and disclose the information and data of the borrowers.
It is the basis of business practices of licensed moneylenders in Singapore. If you wish to know your rights and protection when it comes to borrowing, you can access the digital copy of the Act here.
How the Moneylenders Act Affect Singapore Borrower?
The Moneylenders Act, including all other laws related to moneylending, affects every borrower in Singapore. The rules followed by each licensed moneylenders are based on these laws.
Below are specific ways of how the amended Act affects your dealings and interactions with a finance company.
1. Ensures that moneylenders are legal and licensed
The second part of the Moneylenders Act details what a moneylender has to comply with before being able to provide loan transactions and operate a lending business legally.
This Act defines what and what is not a legal moneylender. If you want to know how lenders can qualify to enter the moneylending industry, reading this document will give you clarity.
2. Protects borrowers from loan sharks
Also, this Act has prevented borrowers from falling prey to the hands of loan sharks. Only businesses that abide by the terms and regulations of the Moneylenders Act are given licenses to operate.
The Registry of Moneylenders, which is an official list of licensed lenders released by the Ministry of Law, is based on the Moneylenders Act.
3. Better access to legal or police help
The amended law has also made it easier for a borrower to seek help from authorities. Vulnerable sectors like foreigners and domestic workers now have a stronger legal fight against loan sharks and other moneylenders who exploited their financial situation.
Latest Changes to the Moneylenders Act That Improve the Protection of Borrowers
While the first version of the law is already helpful to borrowers, the amendment has created new layers of security. It has identified common problems encountered by loan applicants when it comes to sharing of their private information, clarity on terms of loans, and the loan amounts that could potentially leave a borrower drowning in debt.
The updates on the provisions of the Act has responded to reports and recommendations given by borrowers in the past.
1. Improved Protection of Borrower’s Data and Private information
The 2010 amendment has created stricter rules when it comes to the protection of the privacy of borrowers. The amended written law has made sharing the information of borrowers illegal.
This means that all the collected financial and personal information by the lenders from the clients should never be shared to anyone. This serves as another layer of protection to borrowers making sure that they are not exploited by unlicensed moneylenders in Singapore.
2. Use of Effective Interest Rate instead of a Nominal Interest Rate for loans borrowed
In the past, lenders advertise their products and services using a so-called nominal interest rate, which is a percentage that does not include the full effect of compounding. Showing this has often made borrowers confused on the real amount of money they owe.
The amended Act has now required lenders to use the effective interest rate when it comes to advertising and explaining the loan terms to their clients. By doing so, they provide a better and more concrete picture of the loan terms.
The new law aims to make the contract for the loan clearer for the borrowers. The government believes that the clients should understand all the details of the contract, including the loan amount, interest rate, fees, and other charges, so they can plan and decide their finances.
3. Set Loan Cap Limits To Protect Borrowers
The amended law has set a limit to the amount borrowers can borrow. This is to ensure that they can still manage their finances even with their existing loans.
For Singapore Citizens and permanent residents, they can only borrow up to $3,000 if they earn an income of less than $20,000 per year.If they earn higher than that they can loan an amount six times their monthly income.
Meanwhile, for foreigners, those with less than $10,000 annual income can only borrow up to $500. Those with an annual income of more than $10,000 but less than $20,000 can borrow up to $3,000. And, those with an income of more than $20,000 can borrow six times their monthly income.
Interestingly, it is a common practice for loan sharks to offer a loan amount beyond the financial capacity of individuals. By clearly defining the limits of the loan amounts, a borrower would easily sense if a moneylender is legitimate or not.
How Did the New Moneylending Law Updates Help Legalise Moneylenders?
Under the amended moneylending law, moneylenders now have to comply with stricter rules in order to continue providing the services they have.
By doing so, it would be more difficult for loan sharks to continue their operation and pretend as if they are legitimate businesses. Effective in the first quarter of 2019, moneylenders must do the following:
- To be incorporated as companies
- To be limited by shares with a minimum amount of paid-up capital of $100,000
- To submit annual audited accounts to the Registry of Moneylenders
Latest Moneylender’s Act Protects Borrowers From Loan Sharks
Aside from helping credit companies to professionalize the loan industry, the amended law is also helpful to Singaporeans. Here are specific ways on how you, as an everyday money borrower, can feel the impact of the changes of the law.
Please take note that while the law created new requirements and process both for loan companies and borrowers, its sole purpose is to improve and secure the money lending business in Singapore.
1. Easier Verification Process
The amended law has made it easier, even for first-time borrowers, to differentiate legitimate moneylenders from loan sharks. The Ministry of Law has even made it easier to verify the legitimacy of companies by putting the list online which you can access here.
Note that this list is last updated in January 2021, watch out for the most recent list uploaded by the Ministry of Law on their official website.
With just one click, borrowers can search for legitimate loan businesses near their location. The list specifies the business name of a licensed moneylender. Thus, it is easier for a borrower to confirm the legitimacy of a lending business without the need to visit its place of business or business address. Also, the revised law has made it clear that nuisance forms of advertisement like text messages, flyers, and emails are now illegal.
2. Stronger Regulation of Licensed Moneylenders
The law has made it difficult for loan companies to get a license and belong to the registry. This process has weeded out companies with ill intentions. This means that only companies who have the right resources can become a licensed moneylender.
This also means that the Ministry of Law is given more power to regulate lending agencies. They can investigate any reported abuse or illegal activity.
Consequently, they can implement necessary legal actions if a business fails to follow a loan agreement, contracts, and terms and agreements, among many other things. It would be easier to identify a loan shark posing as a licensed moneylender.
The amended Moneylender’s Act improved the lending industry in Singapore in two ways.
First, it legitimized the business of licensed moneylenders. With stricter terms and rules, only capable businesses can get a license. A licensee no longer needs to compete with a loan shark because it is easier for a borrower to identify which one is legitimate and which one is not.
Second, the Act has improved the loan application experience for borrowers in Singapore. A borrower enjoys more rights and privileges today. The newer version of the law has ensured that borrowers, especially those who can be easily exploited, are free from possible abuse.
The more specific loan cap, more reasonable loan terms and agreements, and clearer interest rates, fees, and charges are all put in place to help the financial situation of people living in Singapore.