Law Ministry to impose 3-day cooling-off period for loans taken from licensed moneylenders

The Ministry of Law (MinLaw) announced on Aug 31 that a mandatory cooling-off period of three business days will be imposed from Sept 15 on all unsecured loans – other than a business loan – taken from licensed moneylenders.

During the cooling-off period, borrowers will be allowed to cancel a loan at reduced cost.

Currently, licensed moneylenders are allowed to keep the full loan approval fee, as well as any interest accrued, if a borrower cancels a loan.

From Sept 15, when a borrower cancels a loan during the cooling-off period, licensed moneylenders will be allowed to retain only a portion of the loan approval fee, up to certain limits. This helps to cover the overhead and due diligence costs they incur when granting a loan.

MinLaw said it developed the cooling-off period framework in consultation with the Credit Association of Singapore (CAS) – the professional association representing moneylenders.

It seeks to strike a balance between affording borrowers an opportunity to reconsider their need for credit, which may sometimes be made on impulse, and ensuring that moneylenders are still compensated for the work done when granting a loan.

For non-business loans up to $5,000, moneylenders are allowed to retain a maximum of $50, not exceeding the loan approval fee. For amounts above $5,000, they can keep up to 3.5 per cent of the principal amount of the loan, not exceeding the loan approval fee.

For example, if a borrower obtains a $1,000 loan, he would receive $900 after the upfront 10 per cent loan approval fee.

If the borrower cancels the loan within the cooling-off period, he would have to repay up to $950. This consists of the $900 he received plus $50 – the maximum amount of the loan approval fee that the moneylender is allowed to retain.

If a borrower takes a $10,000 loan and obtains $9,800 after a 2 per cent loan approval fee, he would have to repay up to $10,000 if he decides to cancel the loan during the cooling-off period. This comprises the $9,800 he received and $200 – the maximum amount of the loan approval fee that the moneylender is allowed to retain.

MinLaw also said the Registry of Moneylenders had updated the Professional Service Handbook for the industry in April to further promote the interest of borrowers by getting licensed moneylenders to adopt best practices.

These include providing incentives – for example, discounts/rebates on interest and/or fees – for on-time repayments or loans settled ahead of schedule and establishing digital touchpoints to help borrowers better manage their finances.

Licensed moneylenders were also urged to put in place arrangements to proactively assist distressed borrowers by restructuring the loan repayment to one that will suit the borrower’s financial situation and/or referring them to a social service agency for assistance.

CAS president P. Renganathan welcomed the cooling-off period. “In practice, cancellations are not new – lenders have generally accommodated borrowers who changed their minds shortly after taking a loan. What this framework does is turn that into a clear and consistent right for every borrower as an industry-wide standard, which is a meaningful step forward.”

He added: “The cooling-off period is part of a broader direction the industry has been moving in – greater transparency and more responsible lending – and CAS will continue to support that shift, working with our members to ensure the framework is applied consistently across all licensees.”

Also striking a positive note was Blessed Grace Social Services (BGSS) director of operations Choy Mei Kuen.

She said: “For those who approached the licensed moneylender in haste, this will definitely help them if they decide that they do not need the loan. And for those who took the loan with the intention to gamble, it may also stop them from placing that bet because they have the option to cancel the loan with a small fee.”

But at the same time, Choy, who is familiar with the running of the Gambling Addiction Recovery Centre, pointed out: “Those who seek help at BGSS are usually those who have taken loans with many licensed moneylenders, and they are no longer able to service their loan repayments. This cooling-off period may not be of much help to this group of people.” 

Asked what more can be done, she suggested: “More publicity and awareness messages (at the point of application for the loan), especially at the premises of the licensed moneylender, will make this work better.” 

MinLaw added that it “will continue to maintain a balance between protecting borrowers and ensuring that there is reasonable access to credit from licensed sources”.

It also said the cooling-off period will be implemented on Sept 15 as it recognises that moneylenders will need time to adjust their processes and systems.

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

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