Where do you go when you need to borrow money quickly in Singapore? While banks are the first option of many, they often have a lot of paperwork and long waiting periods.
Licensed money lenders are often more lenient with their requirements, and tend to consider your annual income and ability to repay the loan instead of your credit score.
But in their desperation to get money, many end up falling into the hands of unlicensed money lenders or loan sharks who often operate outside the law.
Hence, in 2018 and 2019, the Singapore government rolled out licensed money lender new rules that aim to regulate borrowing and lending in the country.
Find out more about licensed money lender new rules and how they affect you as a borrower in this article.
The Moneylenders Act summarises all the rights and protection of borrowers and lenders.
This moneylending act in Singapore details how a moneylending business should operate in Singapore, and what licensed money lenders can and cannot do when recovering their money from borrowers.
The Act requires legal money lenders to obtain a license before running a moneylending business. It also states how licensed money lenders should use, collect, and disclose borrower data.
According to the rules stipulated in the Moneylenders Act, legal money lenders should charge a maximum interest rate of 4% per month – regardless of a borrower’s annual income and whether the loan is secured or unsecured.
According to the Act, all money lenders should get approval from the government to run their businesses. They must follow the laws and rules outlined in this Act or risk losing their license.
The licensed money lender new rules are meant to regulate the industry and prevent borrowers from falling into scams. They help borrowers identify the difference between illegal money lenders and legal ones.
The first thing to know is that all legal money lenders must register and obtain a moneylending license from the Ministry of Law.
Apart from the licensing requirements, legal money lenders must adhere the following rules when granting loans:
The Ministry of Law started the first phase of regulating the industry on 30 November 2018 with the Moneylenders (Amendment) Act 2018, and Moneylenders (Amendment) Rules 2018.
The licensed money lender new rules aim to offer better protection to borrowers and improve the regulation of licensed money lenders.
In the first quarter of 2019, the Ministry of Law launched the second phase to professionalise the moneylending industry. These changes brought to the industry aim at helping borrowers get safe access to credit.
The new rules strengthen the regulation of licensed money lenders by stating that a money lender should first get the approval of the Registry of Moneylenders before conducting its activities.
It is now against the law for a licensed money lender to enter into a loan contract that goes against the regulatory caps on interests and fees. Lenders who follow these rules retain their licenses and are listed on the Registry’s website.
Overall, both implementation phases helped to enable borrowers to access personal credit safely.
The rules offer better protection for borrowers as they contain aggregate loan caps that restrict the amount an individual may borrow from a licensed money lender in Singapore.
|Annual Income Of Borrower||Citizens And Permanent Residents Of Singapore||Foreigners Residing In Singapore|
|Not up to $10,000||$3,000||$500|
|At least $10,000, but not up to $20,000||$3,000||$3,000|
|At least $20,000||Up to 6x of borrower’s monthly income||Up to 6x of borrower’s monthly income|
To ensure the aggregate loan cap is in effect, the government introduced a regulatory framework known for the Moneylenders Credit Bureau (MLCB). The MLCB, which functions as a central repository of data, must protect the confidentiality, security, and integrity of borrowers’ information.
The new laws regarding interest, penalty fees, and processing fees prevent licensed money lenders from overcharging borrowers. Therefore, regulated borrowing makes loans affordable to borrowers and prevents them from unnecessary stress that may come due to overcharging.
The licensed money lender new rules also entail a self-exclusion framework.
This enables borrowers to exclude themselves from applying for loans and leverage debt assistance schemes if necessary. Licensed money lenders cannot offer loans to borrowers who applied for self-exclusion.
These new rules require licensed money lenders to inform borrowers about the terms and conditions of the loans. Any legal moneylender who doesn’t follow this will be liable for an offence and may be fined up to $20,000, be jailed up to six months, or both.
The law also requires money lenders to give borrowers cautionary statements in writing before awarding any loans.
This statement notifies borrowers about abusive conduct from a money lender and reminds them that short-term and split loans are forms of unwanted behaviour. They are also required to explain the loan in a language the borrower can easily understand.
It requires licensed money lenders to offer the signed contract, including loan terms in writing, which they should deliver to the borrower before or when granting the loan.
In addition, it states that licensed money lenders should choose a reputable debt collection agency if they cannot collect overdue debts.
They must avoid harassing a borrower with calls, using violence against a borrower and their kin, and avoid hurting them or damaging their property.
To prevent unwanted characters from participating in the business, the law requires licensed money lenders to get approval from the Registry of Moneylenders before employing or appointing any assistant.
According to the Ministry, this will strengthen the regulations for licensed money lenders. The Registry’s approval will also be required before anyone becomes a substantial shareholder of a licensed money lender.
The government established a legislative change to professionalise moneylending in Singapore in 2019. The law needs all licensed money lenders to be incorporated as companies limited by shares with a minimum paid-up capital of $100,000.
It also requires them to submit annual audited accounts to the Registry of Moneylenders. Generally, this strengthening of the moneylending industry aims to ensure that borrowers will have safe access to financial services.
The maximum and late interest rates for any loan are fixed in the Moneylenders Act. The Registry of Moneylenders ensures that no licensed money lender interest rate can exceed what is specified by the Act.
If it discovers otherwise, it can suspend or subject the lender to penalties.
The new rules of the Moneylenders Act improved moneylending significantly in Singapore. It introduced stricter terms and regulations, enabling real businesses to get licenses.
Loan sharks can no longer compete with licensed money lenders because a borrower can easily differentiate the two.
The licensed money lender new rules also help to protect the rights and interests of borrowers, allowing them to borrow money with peace of mind.
Protect yourself by staying alert for signs that may indicate illegal practices before dealing with a money lender. Compare different lenders to get the best option and only deal with licensed money lenders.
If you need a loan, contact CreditMaster to get loans at favourable rates.
As a trusted licensed money lender in Singapore, we can help you solve your financial issues and advise you on the best path to take.