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
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EIGHT licences were revoked and four were not renewed last year as the authorities clamped down on licensed moneylenders with suspect business practices.
The industry regulator, the Registry of Moneylenders, also received 64 complaints against these moneylenders last year, more than three times the 18 it received in 2009.