INCREASED enforcement against loan sharks may have the
unintended result of increasing business for licensed moneylenders.
('Loan-shark woes: Expect more arrests'; Jan 22).
With the amendments to the Moneylenders Act in 2008,
moneylenders were allowed to charge interest and other fees without
any cap on loans above $3,000 or to borrowers who earn more than
$20,000 annually.
Moneylenders have been charging whatever the market can bear.
Based on recent cases we know of, some have increased interest
charges to a high of 260 per cent flat per annum.
In addition, late-payment charges amounting to a flat rate of
520 per cent annually are levied.
If borrowers want to settle early, the repayment charges are
hefty and discourages them from doing so.
The courts can intervene to review the charges but for obvious
reasons, moneylenders will avoid resorting to legal action to
recover their loans, leaving borrowers with little recourse.
One may argue that if borrowers agree to pay such high rates,
the transaction is between a willing borrower and a willing seller.
One may also contend that it is better for an individual to borrow
from a licensed moneylender than an illegal loan shark.
But these arguments beg the question of whether the rates
charged are any different between an illegal loan shark and a legal
moneylender.
Moneylenders do indulge in aggressive collection tactics,
knocking on doors and various forms of harassment and pressure
which also distress borrowers.
Clearly something is wrong with existing laws and regulations
that allow such usurious rates for borrowers.
There is a demand for small loans that is also not met by
financial institutions.
The Moneylenders Act should be reviewed to gauge whether the
amendments have achieved the desired results of making available
credit at affordable prices to individuals, or have made their
plight worse.
Existing bank regulations governing unsecured credit should also
be reviewed to check if they can be relaxed further to be more
inclusive of individuals who do not meet the present income
requirements and must turn to moneylenders.
For example, banks are now permitted to issue credit cards with
a credit limit of not more than $500 to individuals without any
income requirements.
This limit is too small and unattractive for banks. If the limit
was raised to say $1,000, this may encourage more banks into the
microloan arena to meet the need for small loans and compete with
moneylenders.
The authorities may also consider having one body in charge of
unsecured lending, including moneylending.
Kuo How Nam
President
Credit Counselling Singapore