The revised Moneylender Act will come into effect from 1 June 2012 which will affect more than two hundred licensed moneylenders in Singapore. The changes is needed because many Moneylenders are charging very high interest and upfront fees with little or no regard to the borrowers ability to pay.
The Moneylenders Act changes include mandating the use of an effective interest rate instead of a Nominal Interest Rate for loans borrowed and removing certain fees from the list of fees which moneylenders are allowed to charge borrowers.
Previously there are interest rate caps based on the Nominal Interest Rate of 12 per cent for secured loans and 18 per cent for unsecured loans. Now it is mandatory to use the Effective Interest Rate instead of the Nominal Interest Rate as the base for interest rate caps. The Effective Interest Rate will make borrowers more aware of the borrowing costs. Before they sign the loan contract with the money lenders, they will now be aware of what they will have to pay. Before this amendment, they usually will not know the Nominal Interest Rates. Moneylenders will also be required to compute and disclose the effective interest rate of their loan packages to borrowers. The Effective Interest Rate takes into account the compounding effect of the frequency of the instalments over a one-year period, thus better reflecting the actual cost of borrowing over a one-year period.
Currently moneylenders are allowed to charge borrowers certain fees. The new rules remove three fees. These are a fee for accepting the loan application, a fee for payment not being made by electronic funds transfer, and fees for the acceptance or renewal of a revolving credit loan.
Moneylenders who do not provide the Effective Interest Rate of the loan package to their borrowers are liable to a fine not exceeding S$20,000, or imprisonment for a term not exceeding six months, or both. In the case of a second or subsequent offence, a fine not exceeding S$40,000, or imprisonment for a term not exceeding 12 months, or both.