Higher interest charges with change in Moneylending Act

In a recent parliamentary reply, the Ministry of Law revealed an alarming trend - that the number of maids borrowing from licensed moneylenders was "1,500 in 2016, 12,000 in 2017 and 28,000 in the first half of 2018".

This trend suggests that by the end of this year, about one in every four maids in Singapore will be indebted to a moneylender.

This situation appears to be spiralling out of control.

The Ministry of Manpower reported that the police has also observed that more foreigners residing in Singapore, including foreign domestic workers (FDWs), are borrowing from unlicensed moneylenders.

Coincidentally, this trend follows a recent legal amendment which makes it highly profitable for moneylenders to lend to FDWs.

As an illustration, consider a small $500 loan to a FDW.

Before October 2015, interest on that loan was capped at 20 per cent annually for those whose incomes were less than $30,000.

However, after the amendment to the Moneylenders Act in October 2015 - where licensed moneylenders have to cap their monthly interest rate at 4 per cent - the same loan can attract interest charges that are three times higher.

In addition, the amendment makes it legal for moneylenders to charge an additional monthly late fee of up to $60.

As the 2015 report does not disclose the typical late fees charged previously, it is unknown if this cap actually protects borrowers or simply serves as legal sanction for moneylenders to charge an exorbitant monthly amount for late fees, even for a small loan amount.

I suggest that the relevant authorities reinstate the previous legal protection - that is, interest charges capped at 20 per cent annually - for low-income borrowers, and that profits for moneylenders be restrained to a more reasonable level.

Cheong Foong Soon (Dr)

A version of this article appeared in the print edition of The Straits Times on November 27, 2018, with the headline 'Higher interest charges with change in Moneylending Act'. Subscribe