TODAY Online : As loans from moneylenders hit $188m, greater safeguards are needed

As loans from moneylenders hit $188m, greater safeguards are needed
by Leong Wee Keat 05:55 AM Nov 19, 2009

SINGAPORE - Earlier this month, Mr Henry Lim chanced upon classified advertisements promising "easy approval" and "low interest rates". He then approached a licensed moneylender for a $10,000 loan to pay his credit card bills.

The moneylender responded hours later with a "$500 loan" - a cash loan of $400 but Mr Lim would have to pay back $500 over five weeks. The interest of the loan worked out to be 25 per cent. "I rejected it. It was worse than borrowing from loan-sharks," said Mr Lim, 50.

While he has yet to lodge a complaint, others have done so.

The Registry of Moneylenders, the Government watchdog, has received 10 complaints against licensed moneylenders so far this year, on par with 2007 and up from the seven complaints last year.

Meanwhile, the total value of the loans are rising sharply: Last year, the industry granted $188.5 million in loans, almost double the $98 million in 2007.

The Registry declined to reveal the nature of the complaints, citing confidential information provided by the complainants. But it said that warnings have been issued against moneylenders who contravened the Moneylenders Act or Rules.

"Errant moneylenders were required to rectify the breaches," assistant registrar Ms Wong Lai Yin told MediaCorp, adding that "in some cases, the licences ... have not been renewed".

Since longstanding restrictions on the industry - including curbs on interest rates and advertising - were lifted in March, there had been a growth in licensed moneylenders - from 169 at the end of 2007 to 197 as of the end of last month, Moneylender's Association of Singapore president David Poh pointed out. As a result, he was not surprised by illegal tactics by "bad hats" within the industry.

"I'm concerned that licenses are given out too easily. We don't know whether if it is a real moneylender or an illegal syndicate posing as one," said Mr Poh, who noted the exorbitant interest rates charged by some licensed moneylenders, which could be as high as 5 per cent per month.

Membership to the association - which has 60 members - is voluntary. While it can rebuke errant members, it cannot take non-members to task.



Licensed, but ...

Since the easing of the Moneylenders Act, some disputes involving licensed moneylenders and borrowers have surfaced in the courts. For instance, in July, Unlimited Finance filed a suit against a couple who had allegedly defaulted on a $40,000 loan.

But the couple countered that the principal loan amount was only $30,000 as Unlimited Finance purportedly took a $10,000 interest payment when the uncrossed cheque was encashed. A hearing has been set for January.

Scarred by his experience, Mr Lim suggested that the authorities conduct "phantom checks" on licensed moneylenders to ensure compliance with the advertisements they put out.

On its part, the Registry of Moneylenders told MediaCorp that it would investigate complaints regarding false or materially misleading advertisement issued or published by a moneylender.

Under the Moneylenders Act, it is an offence if a moneylender does not inform his borrower of the terms and conditions of a loan before granting the loan.

Storeman Eric Lim, who was at a licensed moneylender to borrow $15,000 for home renovation, suggested that such firms provide information in other languages for those who do not have a good grasp of English.

"I only have primary school education and relied on the staff to explain the terms," said the 49-year-old in Mandarin.

But Ms Wong reiterated that moneylenders must convey the information to the borrower in a language or dialect the borrower understands if he did not understand English.

She added that the registry will explore introducing translations of the "notes to borrowers", which are posted on the website of the Insolvency and Public Trustee's Office and the moneylenders' premises.

To raise public awareness, the Moneylender's Association is also planning to conduct seminars and revamp its website with more advice for borrowers.

But the onus remains on those seeking loans to understand what they are getting themselves into.

"If the terms are unfavourable, they have the right to reject the loan and approach another moneylender who offers better terms," said Ms Wong.