Highlights Relevance Of This Update...1 Introduction Scope Of Moneylending Modernising The Licensing Of Moneylenders Enhanced Regulation Of Moneylending Business...3 Terms And Conditions Of Loan Contract...3 Rate Of Interest Costs, Charges And Expenses Measures To Counter Loansharking Power To Inspect And Require Information Or Documents...5 Concluding Words...6 Enhanced Moneylending Regime Under The New Moneylenders Act Relevance Of This Update The moneylending regime in Singapore will soon be updated. The new Moneylenders Act 2008 ('Moneylenders Act 2008') was passed by the Parliament on 18 November 2008 and assented to by the President on 4 December 2008. It will, with the exception of section 5(3)(b) (ie on payment of application fee), come into operation on 1 March 2009. The Moneylenders Act 2008 seeks to achieve the following objectives: clarify the scope of moneylending activities to be licensed; modernise moneylending operations; enhance protection for borrowers; tighten the regulatory framework giving the Registrar of Moneylenders ( Registrar ) more powers to act against errant moneylenders; and introduce new measures to tackle unlicensed moneylending. Introduction The current Act was enacted in 1959 to regulate small operators and smalltime borrowers. There have since been amendments to this, primarily dealing with unlicensed moneylenders or loansharking. However, the moneylending landscape has changed significantly over the years with the increase in number of moneylenders who are not sole proprietors, i.e. partnerships and companies. This prompted the lawmakers to amend the existing Act to introduce a more flexible approach to the regulation of moneylending. The objective was to have an updated legislation to keep pace with the modern credit economy while taking into consideration the social policy on access to credit. The amendments were a result of a holistic review of the existing Act to see if Singapore s moneylending regime could be enhanced. In amending the current Act, the feedbacks received from a public consultation pertaining to these amendments were taken into consideration. We set out below some of the key features of the Moneylenders Act 2008. 1
Contacts Harish Kumar Partner Direct: (65) 62320360 Facsimile: (65) 64381995 E-mail: harish.kumar @rajahtann.com Terence Choo Partner Direct: (65) 62320485 Facsimile: (65) 64380248 E-mail: terence.choo @rajahtann.com Scope Of Moneylending The Moneylenders Act 2008 seeks to clarify the scope of moneylending. Moneylenders are required to apply for moneylending licence before engaging in moneylending business. If any person who is in the business of moneylending lends money without a licence, any such contract for the repayment of money lent by that person will be unenforceable. Due to the uncertainty surrounding the concept of being in the business of moneylending and the severe consequences of making an incorrect determination, many lenders have taken the safe route of applying for moneylending exemptions, sometimes even for one-off transactions. Under the Moneylenders Act 2008, the concept of excluded moneylenders is introduced. Such persons are excluded from the ambit of the Moneylenders Act 2008 and will not be required to apply for a licence. Excluded moneylender under the Moneylenders Act 2008 includes any person who: lends money solely to his employees as a benefit of employment; lends money solely to accredited investors within the meaning of section 4A of the Securities and Futures Act (Cap. 289); or lends money solely to: (i) (ii) corporations; limited liability partnerships; (iii) trustees or trustee-managers, as the case may be, of business trusts for the purposes of the business trusts; or (iv) trustees of real estate investment trusts for the purposes of the real estate investment trusts (REITs). Under the new framework, with a clear list of excluded moneylenders, persons who fall under the relevant limbs would no longer need to apply for exemptions. Please feel free also to contact the Knowledge & Risk Management Group at eoasis@rajahtann.com. Modernising The Licensing Of Moneylenders Under the Moneylenders Act 2008, individuals and entities that intend to engage in moneylending businesses and that are not exempted moneylenders or excluded moneylenders must apply for a licence with the 2
Registrar. The Registrar may issue a licence with or without conditions or to refuse to do so. He will not issue a licence in the following instances: The material information or statement furnished by applicant is incomplete, false or misleading. The applicant does not satisfy the requirements of the class or description of the licence applied for. The applicant does not place with the Accountant-General a deposit of S$20,000 as security for the proper conduct of its business. In recognition of the role of the moneylending industry in the current economy, licensing of moneylenders will be modernised. Unlike the old moneylending regime where moneylenders may only operate from one location, moneylenders will now be allowed to operate branches provided they obtain the necessary license from the Registrar. The current Act imposes severe restrictions on advertising by licensed moneylenders. The Moneylenders Act 2008 seeks to lift such restrictions with a view that borrowers will be able to make better-informed decisions with more information available in the marketplace. However, any advertisement by the moneylenders must be accurate and should not mislead the public. Under the Moneylenders Act 2008, it is therefore an offence for a licensed moneylender to knowingly and recklessly issue any advertising or marketing material that is false and misleading in a material particular. Enhanced Regulation Of Moneylending Business Under the Moneylenders Act 2008, greater protection will be given to borrowers, and the regulatory framework and enforcement tools available to the Registrar will be strengthened. Terms And Conditions Of Loan Contract Consistent with the policy of the Government to safeguard borrowers, the Moneylenders Act 2008 mandates licensed moneylenders to inform a borrower or his agent in writing, before the grant of a loan, of the terms and conditions of the loan. A note of the contract for the loan, in the prescribed form, must be signed by the parties to the contract or their agents. If any of the party (including a surety, if any) does not understand English, the terms of the note of the contract must be explained to that party in a language that he understands before he signs the note. It is also a requirement that a copy of the note of the contract for the loan signed by the parties to the contract be given to the borrower and the surety (if any) by the licensed moneylender before or at the time the loan is paid 3
out. Rate Of Interest Under the Moneylenders Act 2008, the Minister is given the discretion to prescribe the maximum rate of interest that a licensed moneylender may charge for any loan granted. In instances where a licensed moneylender commences legal proceedings for the recovery of a loan or the enforcement of a loan contract or any guarantee or security given for a loan, the court is authorised to re-open the subject moneylending transaction and take an account between the licensed moneylender and the person sued if the court is satisfied that the interest charged is exorbitant / excessive and the transaction is unconscionable and substantially unfair. The court may then relieve the person sued from payment of any sum in excess of the sum adjudged to be fairly due in respect of the principal and interest on the loan amount. Costs, Charges And Expenses Under the Moneylenders Act 2008, the Minister may also prescribe the types or amounts of costs, charges and expenses that a licensed moneylender may impose in respect of every loan granted. The imposition by a licensed moneylender of any fees other than the types as permitted, or any amount in excess of the permitted fees, will be unenforceable. The borrower may recover such amounts as a debt or by way of set off against the loan and any interest, late interest and permitted fees payable. Measures To Counter Loansharking The Moneylenders Act 2008 introduces further measures to counter loansharking, in addition to the slew of measures already available. The first measure is to extend the punishment of caning to persons who instigate harassment activities. While under the current Act, only persons convicted for harassment activities which result in property damage or persons being hurt are liable to be caned, the Moneylenders Act 2008 extends the punishment of caning to those who instigate or direct the harasser to commit the acts of harassment. The second measure relates to the existing presumption in the current Act. Currently, a person whose bank account or automated teller machine card is used to collect debts by an unlicensed moneylender is presumed to have assisted in the conduct of the business of the unlicensed moneylender. The Moneylenders Act 2008 will extend this presumption to persons in whose names telecommunication services are subscribed where those services are used to facilitate the carrying on of business by the unlicensed moneylender. 4
Power To Inspect And Require Information Or Documents To strengthen the enforcement tools available to the Registrar, the Moneylenders Act 2008 gives the Registrar or an officer authorised by him the power to do the following: inspect any premises where a moneylender is or is believed to be carrying on business and the books, records and other documents kept there; require the moneylender or any other person to furnish any information, book, record or other document; make or cause to be made a copy of any book, record or other document inspected or produced; take photographs or video recording of the premises inspected or any part thereof; and seize and remove from the premises any book, record or other document, or any machine or equipment containing any book, record or other document. The new legislation also empowers the Registrar to issue directions to a moneylender for the carrying out of the provisions of the Act. Concluding Words We have previously issued a Client Update in relation to the Moneylenders Act 2008. To view this earlier Update, please click on the link below: Client Update August 2008 Consultation On The Moneylenders Bill 2008. If you would like more information on the above, please contact Harish Kumar or Terence Choo, whose numbers appear on the left of page 2, or contact the Knowledge & Risk Management Group at eoasis@rajahtann.com, and we would be happy to assist you. Rajah & Tann LLP is one of the largest law firms in Singapore, with a representative office in Shanghai and an associate firm, Kamilah & Chong, in Kuala Lumpur. It is a full service firm and given its alliances, is able to tap into resources in a number of countries. Rajah & Tann LLP is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealings with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The information contained in this Update is correct to the best of our knowledge and belief at the time of writing. The contents of the above are intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as the information above may not necessarily suit your specific business and operational requirements. It is to your advantage to seek legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann LLP or e-mail the Knowledge & Risk Management Group at eoasis@rajahtann.com. 5