Proposals made after failing to quash recommendation for interest rate cap

AFTER failing to have a proposal for a 4 per cent cap on monthly interest rates scrapped, moneylenders now want to be able to slap borrowers with a $60 fee every time a payment is late.

They also want the green light to charge a one-off fee of 10 per cent of the loan once it is approved.

The proposals form part of the raft of claims made by Moneylenders’ Association of Singapore to a government-appointed advisory committee formed last June to review and strengthen moneylending rules.

The 15-member panel will finalise its recommendations today.

It had earlier proposed that an interest rate cap of 4 per cent a month be imposed, including a late-payment interest, also capped at 4 per cent a month.

No other fees would be allowed to be imposed on borrowers.

These proposals drew strenuous objections from licensed moneylenders when announced last November.

Moneylenders, who can now charge as much as they want, with rates averaging 20 per cent to 40 per cent a month, said the 4 per cent interest rate cap was not tenable.

They said they should be allowed to charge 15 per cent to 20 per cent a month in order to cover high overhead costs and the risk they take in lending to certain borrowers.

The Moneylenders’ Association had said to the committee earlier that many of its borrowers would not get loans from banks. They also claimed that at least 20 per cent of such customers default on their payments.

Licensed moneylenders expect a rise in loans as thousands of heavily indebted individuals could have their credit facilities suspended by banks, once tougher rules take effect on June 1.

The president of the Moneylenders’ Association, Mr David Poh, estimates that lending will rise 30 per cent once the new rules kick in.

But credit counsellors have urged the authorities to prevent moneylenders from capitalising on the change in regulations.

A borrower, who wanted to be known only as Mr K. H. Tan, told The Straits Times that he owes more than $20,000 to 15 licensed moneylenders.

He found himself caught in the web of late fees last year when he borrowed money to pay debts to loan sharks.

The 36-year-old, who earns $2,500 a month as a technician, said he first took a loan of $1,000 from a licensed moneylender and was required to pay an instalment of $400 over four weeks.

“The $1,000 loan wasn’t enough to clear my debt. I had also used up my salary to pay the loan sharks. Because it was a weekly loan and the payment was due before I received my salary the next month, I had to borrow from another licensed moneylender to meet the instalment payment of the first licensed moneylender,” said Mr Tan.

“Almost every week, I was shopping for a licensed moneylender to borrow from.”

The loans were easy to get, according to Mr Tan.

“I just needed to show them my payslip to prove that I am gainfully employed. Even though they knew that I was heavily indebted, they were willing to offer me a loan,” he said.

The Monetary Authority of Singapore estimated that at the end of February, there were 32,000 people with unsecured debt of more than 24 times their monthly salary.

This will bar them from taking out further unsecured loans from June 1. The rule gets tighter from June 1, 2017, when the limit falls to 18 times the monthly income. It goes down again from June 1, 2019, to 12 times.