A man borrowed $400 from a licensed moneylender and ended up owning thousands of dollarst.
This was reported by The Straits Times who interviewed cleaner Goh Chin Ann and found out about this.
Mr Goh initially borrowed $400 from the licensed moneylender Credit88 in August.
But there were three different conditions on the loan.
On the agreement that Mr Goh signed, the interest was only eight cents a day.
However, the contract also had another condition – if he did not pay back his loan the next day, he would need to pay a $600 late-fee charge.
But he was give a card with a third condition. It said that he had to repay his loan in five months, at $200 a month.
But this loan repayment was actually not in the agreement.
Mr Goh is 62 years old and earns only $1,000 a month. Eventually, he defaulted on one of his installments.
That was when he was warned of the “very, very high” late fee.
By now, Mr Goh was at wit’s ends and he approached two other moneylenders – licensed ones again.
He borrowed another $500 from Assure Capital in Clementi and AP Credit in Anson Road. Their interest rates were half of what Credit88 charged, at 3.72 percent.
But they both also made him sign contracts which said that he had to pay up the full loan the next day or he would have to pay a late fee of $1,250.
Soon, Mr Goh was saddled in thousands of dollars of debt.
Eventually, Mr Goh approached Blessed Grace Social Services, a support group for gambling addicts, who helped Mr Goh negotiate to pay the loans over a longer period.
These were licensed moneylenders but even they would resort to such tactics to force borrowers into a corner.
The three licensed moneylenders did not want to comment on their tactics.
But apparently it is a common “scare tactic” that these licensed moneylenders use.
It is also a way for “moneylenders to cover themselves”.
This is how their trick works – as the repayment schedule is different from the agreement they give to borrowers, if they are questioned on this, they will then pretend that the the repayment schedule actually includes the late fees.
But how have these moneylenders become so bold in using such tricks? Are they not licensed and should be better policed?
However, Moneylenders’ Association of Singapore president David Poh acknowledged that because there no rules at all on late charges, this allowed the licensed moneylenders to do whatever they want.
There is only a rule on interest rates cap.
But even then, for borrowers who earn below $30,000 a year, the annual interest is still a staggering 20 percent.
Mr Poh admitted, “The only way for moneylenders to earn a profit from low-income borrowers is through late fees,”
On how this should be dealt with, Mr Poh said, “We encourage the authorities to cap such fees, so borrowers do not suffer.”
When contacted, the Registry of Moneylenders only said that it knows of the “very high late fees” and a review is ongoing but if this problem has been ongoing for some time now, should remedial actions not have been taken earlier?
The registry regulates the moneylenders.
The licensed moneylenders claim that there should not be further new rules as they would have to close shops.
They also said that they do not lend money to the low-income to make money off them.
However, Mr Goh’s example proves otherwise and not only that, many gambling and debt support groups also revealed that these moneylenders have been very happy to keep lending the low-income money.
Clearly, these licensed moneylenders lack morals and ethics and they are profiting off the low-income, who have the least ability to pay.
Earlier last month, a committee tasked to review moneylending regulations recommended new regulations for a loan cap of four times the borrower’s monthly income, interest rates to be capped at 4 per cent a month, and late interest capped at 4 per cent a month, with no other fees allowed.
But Mr Poh had said then, “It won’t be a sustainable figure. We are looking at around 10 to 15 per cent based on our default (costs), our accounts … if this were to go on, at 4 per cent, we will definitely close shop – most of my members will close shop.”
But yet, Mr Poh also acknowledged that the moneylenders were actually profiting from the low-income.
Clearly, what the “licensed” moneylenders are doing is unethical and preys on the low-income.
Even if the new regulations are implemented, the moneylenders can still devise new ways to go about that.
Moreover, it does not solve the fundamental issue as to why the low-income even need to borrow in the first place.
To effectively deal with the current situation, the solution should not be a piecemeal effort to develop new regulations.
A holistic plan should also involve uplifting the incomes of the low-income to allow them to earn enough without having to borrow beyond their needs, in addition to the addiction counselling and support provided.