Remittance firms will be barred from lending money from Sept 10 as the authorities move to better protect consumers - many of them foreign maids here - and close off what industry observers say is a regulatory loophole.
The prohibition notice issued by the Monetary Authority of Singapore (MAS) comes ahead of the new Payment Services Act - which bans such activities - that is likely to kick in late this year.
A spokesman for MAS said yesterday that it is "not the intent of the MAS" to allow licensed remittance firms to conduct consumer lending.
Monday's notice will not affect existing loans, including restructured and refinancing loans.
It follows a review that the authority announced last October. The Straits Times had reported about the Toast Me remittance licensee in Lucky Plaza granting cash advances with interest to maids.
Industry observers said it is unusual for remittance firms to offer loans when their primary role is to transmit money overseas.
But they noted that some might be exploiting a loophole as they are not licensed moneylenders under the oversight of the Law Ministry's Registry of Moneylenders.
Mr Barakath Ali, representing chairman of The Remittance Association (Singapore), said it welcomes MAS' clear directives.
"Before, we had a bit of grey area. Now, we are much more clear," said Mr Ali, who has been in the remittance business for 15 years.
Remittance licensees who fail to comply with any requirement specified in a written MAS direction could be fined up to $25,000 and/or jailed for up to 12 months.
More foreigners have been borrowing from licensed moneylenders, with 35,000 taking out such loans in the first half of 2018 - a huge increase on the 7,500 for all of 2016.
New loan caps introduced by the Government to tighten money-lending rules to protect foreigners living and working here have caused some to turn to unlicensed sources.
Addressing Parliament during the debate over the new law, Education Minister and MAS board member Ong Ye Kung said: "It must follow that if the licensees wish to do more, then they must be subject to more regulatory measures. Licensees, therefore, cannot engage in consumer lending or banking activities such as accepting deposits and granting loans unless they hold the appropriate licence under the Banking Act or the Moneylenders Act."
MAS said it issued the prohibition notice after feedback from the public. ST understands that the complaints were mainly over the high interest rates charged - touching 10 per cent a month in some cases.
Pastor Billy Lee, executive director of Blessed Grace Social Services, fielded distress calls from maids struggling with debt, including about 110 cases of those who had taken loans from Toast Me.
He urged MAS to outlaw such loan services immediately so as "to prevent Toast Me from aggressively advertising their credit facility to foreign domestic helpers".
Toast Me founder and chief executive Aaron David Siwoku told The Straits Times yesterday: "We have already informed MAS that Toast Me will be in compliance of the new regulations by the deadline."
ST understands that the authorities have so far received complaints centring on Toast Me, which got its remittance licence in 2016.
The MAS spokesman said the Sept 10 deadline will give affected remittance licensees time to make business changes. "Remittance licensees should not increase their lending when the prohibition already gives a clear signal of MAS' policy intent that they should not lend to individuals," she added.