Stricter loan limits to curb over-borrowing

Upward trend in debt sparks changes to Moneylenders Act

Borrowers can no longer go from one moneylender to another to become "over-indebted".

In the latest move to regulate the industry, Parliament yesterday approved changes to the Moneylenders Act which, among other things, set an overall loan ceiling.

This is a departure from the current caps, which restrict how much they can borrow from individual moneylenders.

The tightening of the rules is due to "an upward trend in the amount of outstanding debt owed" since 2015, Senior Minister of State for Law Indranee Rajah said when replying to Non-Constituency MP Daniel Goh. She also said that those earning less than $20,000 a year cannot borrow more than $3,000, while the maximum loan for all borrowers is six times their monthly income.

These changes "will help us to nip over-borrowing in the bud before it gets worse", Ms Indranee said.

Moneylenders will also have to get a borrower's credit report from the Moneylenders Credit Bureau before giving a loan. They are required to update the bureau on repayments as well.

However, Ms Indranee noted that the proportion of Singaporeans who over-borrow remains small, at below 2 per cent - or about 610 people - between March 2016 and March last year. These over-borrowers have an outstanding balance that is more than the upcoming loan ceiling.

Nine MPs spoke in support of the changes although several, including Mr Alex Yam (Marsiling-Yew Tee GRC), worry that the stricter rules may drive borrowers to unlicensed moneylenders.

Ms Indranee replied that since the imposition of caps in 2015, arrests for unlicensed moneylending have been falling: "There's no evidence the 2015 tightening pushed more borrowers to unlicensed moneylending. We will, however, continue to monitor this closely."

Other MPs, such as Dr Intan Azura Mokhtar (Ang Mo Kio GRC) and Mr Louis Ng (Nee Soon GRC), asked about the protection of borrowers' information, which moneylenders will have to update and request. Ms Indranee said the moneylenders are subject to regulations as well as the guidelines of the Personal Data Protection Commission.

Mr Desmond Choo (Tampines GRC) asked if there was a need to curb the number of moneylending facilities in the heartland. Ms Indranee said a study done last year with the Singapore Land Authority found that borrowers are increasingly going to moneylenders outside their neighbourhoods.

Other changes to the Act include tighter approval requirements for moneylenders and stricter requirements on loan contracts.

To make the industry more professional, moneylenders have to incorporate as companies and submit annual audited accounts to the Registry of Moneylenders. Almost 70 per cent of about 160 licensed moneylenders here have registered as companies, Ms Indranee said. About 41,000 borrowers took loans from moneylenders as of the third quarter of last year. Around 80 per cent were Singaporeans and permanent residents, with a total outstanding loan amount of $339 million.

A version of this article appeared in the print edition of The Straits Times on January 09, 2018, with the headline 'Stricter loan limits to curb over-borrowing'. Print Edition | Subscribe