Does regulation really make the money lending industry safer?

Does regulation really make the money lending industry safer?

Money lenders.

Does that term make you cringe and fear? You wouldn’t be to blame. While personal loans from third party lenders can be a lifesaver for people with bad credit, it does not come without a cost.

Many reports of people in financial strife point to high interest loans as the cause, often with money lenders in the middle of it all.

But just how did these money lenders get away with it? Usually, poor regulatory oversight is to blame.

The current state of affairs

About one third of the Americans lives under a pay check to pay check. Their financial situation is stressed and they have poor credit and savings. With such a poor credit score, most Americans have no option but to turn to private moneylenders.

In the US, private moneylenders can charge an interest rate as high as 15% – 20%, which is especially viable if you’re looking for a loan with barely any qualifying criteria.

Most private lenders use property as a collateral for the money financed. The Consumer Finance Protection Bureau has capped the fees for hard money lending at no more than 5% for a loan of $20, 000 and more and up to 8% for a loan of less than $20, 000.

One country that has successfully brought money lending under control through regulation and licensing is Singapore.

After the announcement of the money lending regulations on October 1, 2015 in Singapore, 80% of unauthorized money lending activity and loan shark scams have now been brought under control.

Here are the capped rates on loans under the New Moneylenders Regulations in Singapore:

  • Up to 10% administrative fee.
  • Up to 4% interest to be levied per month.
  • Late interest of no more than 4% per month.
  • Up to $60 late fee amount per month.
  • Total borrowing cost (late interest fees, interest, other fees) to be no more than 100% (or 2X the principal) of the loan amount.

Similarly, to keep a check on moneylenders in the UK the Financial Conduct Authority (FCA) has put some obvious and similar checks like:

  • Restricting outstanding charges to not more than 2x of principal.
  • Limiting roll overs to just two in numbers.

How regulation translates into everyday life

Despite these stringent rules, many money lenders have exploited the loopholes and perform unlawful money lending practices. According to the law ministry, a money lender cannot do the following practices:

  • Harass you, threaten you or use abusive language to retain the outstanding amount.
  • Withhold any segment of the principal loan amount after clearance of your dues.
  • Ask for your SingPass details or NRIC Card and other personal documents.
  • Grant you loan without explaining you all the clauses of the Note of Contract and give you a blank or incomplete note of the contract.
  • Split one loan into several segments so that you have to pay administrative fees for each upon refinancing.
  • Pressurize you to renew your loans so that they can get an extra 10% administrative fee, besides the 4% late interest, totalling to 14%.
  • They cannot compel you to sign for approval of any automatic mode of payments. Auto pays can charge you much more than your expectations and may drain your already starved wealth in no time.

Monitoring begins with citizens

If you have been facing any of these issues, then you need to immediately resolve your dilemma with any of these saviour trump cards:

  • Contact the law ministry for assistance: In our earlier example, Singaporeans can write to OneMinLaw@mlaw.gov.sg for reporting or seeking any kind of assistance from the regulators. Such simple access to regulatory bodies is essential for keeping money lenders under a watchful eye.
  • Seeking help from the court: the court can ask the moneylender to pay back the excess payments if they find the transaction to be unfair and non- transparent.
  • Take advice from a good lawyer: you can take legal advice from the law experts and if you find yourself to be harassed or trapped by a moneylender, you can approach a tribunal or the court to resolve your issue at the earliest.

Innovation contributes to upholding regulations

One reason Singapore is held up as a model for honest money lending  practices is not attributable to regulation alone. Entrepreneurs and tech innovation has played a large part in helping people borrow safely.

Platforms such as www.loanadvisor.sg introduce you to only licensed moneylenders with whom you can engage in legitimate and regulated transactions.

At its foundation, all trusted and licensed money lenders should possess the following features:

  • The moneylenders clearly explains you the terms of the contract and delivers to you a soft/ hard copy of the loan contract. It’s your duty to give a thorough reading to every clause of the contract.
  • The moneylender should, without fail, deliver you the entire amount of the specified loan. The lender should not deduct more than the fixed administrative charges capped by the ministry from the loan amount.
  • The moneylender should not keep any hidden cost for your transaction. You may seek immediate legal help if your moneylender notoriously hikes administrative fees or other interest rates.
  • You must receive a genuine receipt for every instalment of the loan repayments done. Preserve all these receipts and other documents for future needs.
  • You would also require getting a statement of accounts of your loans, at least after every 6 months.

If your chosen moneylender fails to provide any of the above services, it’s your right to question them and seek legal advice if you are not satisfied with their service. Loan Advisor is a comparison site where you can seek free services for finding qualified licensed moneylenders in Singapore.

However, you cannot directly buy personal loans through third party moneylenders online. For safety and legal issues, the moneylenders listed on the site should be approached offline to get the deal done.

Final Thoughts

In the interest of its citizens, most developed counties have laid stringent regulations to keep an eye over exploitative moneylending activities.

While monitoring bodies are tasked with the implementation, it’s also your awareness that plays a crucial role in ensuring that you don’t fall victim to money lending scams.