394
Singapore Academy of Law Journal
(2009) 21 SAcLJ
THE NEW MONEYLENDERS ACT 2008
A Lost Opportunity?
A new Act governing the business of moneylending became
effective in Singapore in March 2009. The Act addresses the
problem of recalcitrant debtors seeking to avoid their
obligations by accusing their creditors of being unlicensed
moneylenders, which, if true, has serious implications. At the
same time, the Act brings the regulation of moneylenders
more into line with other major lenders, such as banks. The
new Act adheres to the existing model of credit regulation in
Singapore. This raises the question whether a more
comprehensive statute, consolidating good practice
requirements from all credit providers, would not be more
appropriate.
Sandra Annette BOOYSEN∗
BA (Rhodes University, South Africa),
LLB (University of the Witwatersrand, South Africa), LLM,
PhD (National University of Singapore);
Assistant Professor, Faculty of Law, National University of Singapore.
I.
Introduction
1
1
Moneylending is among the oldest of professions with a
disreputable stigma that has prompted regulation in Singapore and
elsewhere. A new Moneylenders Act (“MLA 2008”) was passed in
2
3
Singapore at the end of 2008; it took effect on 1 March 2009. According
to the announcement by the Ministry of Law, the new legislation is
more flexible, more progressive and modernises moneylending
∗
1
2
3
The author is most grateful to Emeritus Professor Peter Ellinger and Professor
Andrew Simester from the National University of Singapore for their comments
that have undoubtedly improved this piece; any errors are, of course, the author’s
own.
References to usury can be found in the Bible, for example, in the books of Exodus
22:25, Leviticus 25:37 and Deuteronomy 23:19; also in the writings of Aristotle
(who lived from 384 BC to 322 BC), see The Politics of Aristotle, translated by
William Ellis (London, J M Dent & Sons Ltd, 1952) at p 19 and the translation by
Peter L Phillips Simpson (The University of North Carolina Press, 1997) at p 27.
Moneylenders Act 2008 (No 31 of 2008).
With the exception of s 5(3)(b), which relates to the payment of a non-refundable
licence application fee.
(2009) 21 SAcLJ
Moneylenders Act 2008
395
4
practices. Its predecessor was a product of the past: the Moneylenders
5
Act (1985 Rev Ed) (“MLA 1985”) was based on the Straits Settlements
6
Moneylenders Ordinance of 1959 which was preceded by the Straits
7
Settlements Moneylenders Ordinance of 1935, the latter having been
modelled on the UK Act of 1900. A review of Singapore’s law relating to
moneylending is timely, coming into effect as it has, in the midst of the
biggest financial crisis since the Great Depression, a crisis characterised
by a shortage of much needed credit. In 2005, in City Hardware Pte Ltd v
8
Kenrich Electronics Pte Ltd (“City Hardware v Kenrich Electronics”),
V K Rajah J in the High Court urged a review of the moneylending
legislation to make it more relevant to the credit needs of a modern
9
Singapore. In 1966, a similar message had been sent in the case of
10
United Dominions Trust Ltd v Kirkwood (“UDT v Kirkwood”) by the
Court of Appeal in England about the UK’s Moneylenders Act. The
11
legislation was described as “out of date” and “unsuited to modern
12
conditions of trade”. Indeed, the UK moneylending legislation was
ultimately repealed and replaced by the more comprehensive Consumer
Credit Act 1974.
2
The goal of moneylending legislation (in England, Singapore
and other jurisdictions such as Australia and New Zealand) has been to
13
deter unscrupulous moneylending activity. In the words of Singapore’s
14
Senior Minister of State for Law at the second reading of the new
Moneylenders Bill, it is “a piece of social legislation” aiming to protect
15
the “small time” borrower. Farwell J was blunter in Litchfield
16
v Dreyfus, when he said that the legislation aimed to protect “the
17
foolish” from extortion. The targets of the statute, old and new, are
18
moneylenders who are “rapacious, extortionate or unmerciful” in
conducting their business. Their abuses can take various forms,
including exorbitant interest rates, withholding (and even
manipulating) the terms of the loan from the debtor, and harassing the
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
On the website of the Ministry of Law at <www.minlaw.gov.sg> (accessed 28 June
2009).
Moneylenders Act (Cap 188, 1985 Rev Ed).
Ordinance 58 of 1959.
Ordinance 6 of 1935.
[2005] 1 SLR 733.
[2005] 1 SLR 733 at [49].
[1966] 2 QB 431.
[1966] 2 QB 431 at 462A, per Lord Justice Diplock.
[1966] 2 QB 431 at 461E, per Lord Justice Harman.
See, for example, Donald McArthy Trading Pte Ltd v Pankaj s/o Dhirajlal [2007]
2 SLR 321 at [6].
Associate Professor Ho Peng Kee.
Second reading speech, 18 November 2008.
[1906] 1 KB 584.
[1906] 1 KB 584 at 590.
UDT v Kirkwood [1966] 2 QB 431 at 456A.
396
Singapore Academy of Law Journal
(2009) 21 SAcLJ
debtor and his family for repayment. The ubiquitous problem of
exorbitant interest rates is illustrated by the case of Tan Sim Lay v Lim
19
20
Kiat Seng, where an interest rate of 152% per annum was charged.
The moneylending legislation of the past, however, has generated its
own problems; it has given debtors seeking to escape legitimate
contractual obligations, but with no substantive basis on which to do so,
a technical and very effective defence: asserting that their creditor is an
21
unlicensed moneylender. This will be discussed in more detail below;
first, an overview of the new Act.
II.
Overview of the provisions of the MLA 2008
3
A comparison of the old and the new Acts reveals that the
22
fundamentals are unchanged. Moneylenders must be licensed;
unlicensed moneylending is a criminal offence liable to punishment by a
23
fine, imprisonment or both; and unlicensed loans cannot be enforced
24
25
in the courts. In effect, the unlicensed moneylender is an “outlaw”.
The rebuttable presumption that a person is a moneylender where
26
interest is payable on a loan has been retained. The potential for this
presumption to apply to an occasional loan between friends or
acquaintances is tempered by the requirement that the lender must be
engaged in the business of moneylending before he is required to be
27
licensed. This ordinarily requires a “system and continuity about the
28
transactions”. Despite the severe penalties, it is apparent that
19
20
21
22
23
24
25
26
27
28
[1996] 2 SLR 769.
[1996] 2 SLR 769 at [21]F.
A number of cases illustrate this point, eg, Olds Discount Co Ltd v John Playfair Ltd
[1938] 3 All ER 275; UDT v Kirkwood [1966] 2 QB 431; Subramaniam
Dhanapakiam v Ghaanthimathi [1991] SLR 432; City Hardware v Kenrich
Electronics [2005] 1 SLR 733.
Moneylenders Act (Cap 188, 1985 Rev Ed) s 5; Moneylenders Act 2008 (No 31 of
2008) s 5.
Moneylenders Act (Cap 188, 1985 Rev Ed) s 8; Moneylenders Act 2008 (No 31 of
2008) s 14.
Moneylenders Act (Cap 188, 1985 Rev Ed) s 15; Moneylenders Act 2008 (No 31 of
2008) s 14(2).
UDT v Kirkwood [1966] 2 QB 431 at 456A, per Lord Denning MR.
Moneylenders Act (Cap 188, 1985 Rev Ed) s 3; Moneylenders Act 2008 (No 31 of
2008) s 3. Section 3 refers not to interest but to a larger sum being repayable than
the amount lent.
Moneylenders Act (Cap 188, 1985 Rev Ed) s 5(1); Moneylenders Act 2008 (No 31
of 2008) s 5(1). See also Subramaniam Dhanapakiam v Ghaanthimathi [1991]
SLR 432 at [10]–[11]; Mak Chik Lun v Loh Kim Her [2003] 4 SLR 338 at [10].
Newton v Pyke [1908] 25 TLR 127; followed in Singapore in Subramaniam
Dhanapakiam v Ghaanthimathi [1991] SLR 432 at [6]; Tan Sim Lay v Lim Kiat Seng
[1996] 2 SLR 769 at 777I; Mak Chik Lun v Loh Kim Her [2003] 4 SLR 338 at [11];
but see Ng Kum Peng v PP [1995] 3 SLR 231 at [40] where Yong Pung How CJ said
that in some situations a transaction may amount to moneylending despite the
absence of system and continuity.
(2009) 21 SAcLJ
Moneylenders Act 2008
397
unlicensed moneylending activities in Singapore continue. In February
2009, it was reported in the Singapore press that unlicensed
29
moneylending had been “the target of an islandwide police operation”.
4
The preclusion of unlicensed moneylenders from due process in
the courts is understandable; unlicensed moneylending is illegal and it
would be untenable to allow such moneylenders recourse to the
machinery of the legal system to enforce their illegal loan contracts; yet
the prohibition has been problematic. Firstly, most unlicensed operators
probably prefer their own tried and tested enforcement measures that
are undoubtedly cheaper, quicker and perhaps more effective than debt
collection through the courts. Consequently, there is not much scope for
the enforcement prohibition to deter this species of moneylender,
commonly known as a “loanshark”, although, ironically, they are its
primary target. Moreover, as already indicated, the unenforceability of
unlicensed moneylending contracts has led to abuse by unscrupulous
borrowers seeking to escape their contractual obligations. When sued,
usually by a respectable entity, the recalcitrant borrower alleges that the
contract constitutes a loan from an unlicensed moneylender and is
30
unenforceable. Thus, in Olds Discount Co Ltd v John Playfair Ltd (“Olds
Discount v John Playfair”), the defendants sold their book debts to the
plaintiff. When the plaintiff sought to enforce the agreement, the
defendants claimed that the transaction amounted to unlicensed
moneylending. The defence failed; the court was satisfied that the
transaction was a genuine sale of book debts. It also acknowledged that
the defendant’s reason for pleading the moneylending statute was to “get
31
out” of paying its debts. The court’s disapproval of such conduct was
32
also evident in UDT v Kirkwood, where Harman LJ (dissenting on the
outcome) described the unlicensed moneylender defence as “wholly
33
without merit”.
5
A particularly objectionable manipulation of the prohibition on
unlicensed moneylending occurred in City Hardware v Kenrich
34
Electronics. City Hardware and its managing director had for some
years had a business relationship with Kenrich Electronics and its
managing director, whereby City Hardware would, at the behest of
Kenrich, purchase and pay for goods from suppliers selected by Kenrich.
City Hardware would then sell the goods on credit to Kenrich, for a
35
“relatively modest” mark-up. The court was satisfied that the
29
30
31
32
33
34
35
Today (19 February 2009).
[1938] 3 All ER 275.
[1938] 3 All ER 275 at 281.
[1966] 2 QB 431.
[1966] 2 QB 431 at 461D. See also the dictum of Lord Denning MR at 441B: “He
has no defence whatever except that he has raised the Moneylenders Act, 1927.”
[2005] 1 SLR 733.
[2005] 1 SLR 733 at [39].
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Singapore Academy of Law Journal
(2009) 21 SAcLJ
arrangement, while serving the purpose of giving Kenrich credit that it
was unable to obtain from the supplier, was a genuine purchase and on36
sale of goods and not a loan. It was therefore not a sham transaction.
The next development in the saga marks the highpoint of the
defendant’s repugnant conduct. It began purchasing goods, in terms of
the arrangement described above, from a supplier called Aloh which, it
37
transpired, was a “front” for Kenrich’s managing director. The court
was satisfied that City Hardware, through its managing director, was not
38
aware of Aloh’s connection with Kenrich. Kenrich defaulted on the
invoices rendered to it by City Hardware and when sued, Kenrich
alleged that the cash payments by City Hardware of the “purchase” price
of the goods to the masquerading supplier, Aloh, were in fact
unenforceable loans under the moneylending legislation. The defence
39
failed, the court’s disapproval, apparent. V K Rajah J expressed his
concern about the scope for the moneylending legislation to target
40
legitimate business arrangements.
6
The sentiments of V K Rajah J in City Hardware v Kenrich were
reiterated by the Court of Appeal in Donald McArthy Trading Pte Ltd v
41
Pankaj s/o Dhirajlal, where the alleged moneylender charged for the
use of his credit facilities by the putative borrower to obtain letters of
credit for the purchase of goods. The court construed the arrangement
as a loan or rental of credit facilities and not as a moneylending
42
transaction caught by the MLA 1985. Chan Sek Keong CJ expressed the
view that it was unnecessary for the MLA to proscribe financial
arrangements between business parties when they “negotiate the terms
43
of the transaction at arm’s length”. Such arrangements were
44
“a convenient way to expand credit facilities in the market”, he said.
7
The MLA 2008 will reduce the potential for the abuse of the
unlicensed moneylender defence. It does so by increasing the number of
lending activities which do not require to be licensed. The Interpretation
45
section reflects the new approach. It introduces the concept of an
“excluded moneylender”. Excluded moneylenders incorporate the
36
37
38
39
40
41
42
43
44
45
[2005] 1 SLR 733 at [33], [38], [41].
[2005] 1 SLR 733 at [12]. Later, at [34] it was described by V K Rajah J as “a shell
company” designed to hide the true interest of the managing director in the “front
end” of the transactions.
[2005] 1 SLR 733 at [13].
[2005] 1 SLR 733 at [42].
[2005] 1 SLR 733 at [48].
[2007] 2 SLR 321.
[2007] 2 SLR 321 at [24]. See also the earlier case of Nisho Iwai Int (S) Pte Ltd v
Kohinoor Impex Pte Ltd [1995] 3 SLR 268.
[2007] 2 SLR 321 at [25].
[2007] 2 SLR 321 at [25].
Moneylenders Act 2008 (No 31 of 2008) s 2.
(2009) 21 SAcLJ
Moneylenders Act 2008
399
46
previous exclusions from the MLA 1985, including those who lend as a
subsidiary activity to support their primary business and those
authorised by statute, co-operative societies, pawnbrokers and certain
members of the financial services sector which are now collectively and
neatly described as those regulated by the Monetary Authority of
47
Singapore. The most significant change in the new MLA 2008 is the
extension of the excluded class to a number of new categories, namely,
48
those who lend only to: their employees, wealthy/sophisticated
49
investors, companies, limited liability partnerships and trustees of
business trusts and real estate investment trusts (“REITs”).
8
The thinking behind the exclusion of this large category of
entities presumably lies in the sentiments expressed by V K Rajah J in
City Hardware v Kenrich Electronics that “it is clearly not the objective or
intention of the MLA to prevent or impede legitimate businesses from
entering into legitimate arrangements for improving cash flow; nor is it
the objective of the MLA to constrict the flow of financial liquidity in
50
commerce among smaller businesses”. It was, and still is, possible
under the MLA to apply for exemption from the licensing
51
52
requirements and, according to the Senior Minister of State for Law at
the second reading of the new Moneylenders Bill, those lending only to
companies or their own employees, were amongst those already
53
receiving exemptions under the old Act.
III.
Reputational and operational constraints
9
Moneylenders have suffered, justifiably or not, from a poor
public image over the centuries. Their profession was, for example,
condemned more than 2,000 years ago by Aristotle: “usury is most
reasonably detested, as it is increasing our fortune by money itself, and
not employing it for the purpose it was originally intended, namely
54
exchange.” Despite their poor reputation through the ages, in Litchfield
46
47
48
49
50
51
52
53
54
Moneylenders Act (Cap 188, 1985 Rev Ed) s 2.
This covers the biggest of moneylenders, namely, banks. As Harman LJ put it in
UDT v Kirkwood [1966] 2 QB 431 at 456E–F: “Q. When is a moneylender not a
moneylender? A. When he is a banker.”
As an employment benefit.
Defined as an “accredited investor” within the meaning of s 4A of the Securities
and Futures Act (Cap 289, 2006 Rev Ed).
[2005] 1 SLR 733 at [48].
Moneylenders Act (Cap 188, 1985 Rev Ed) s 36; Moneylenders Act 2008 (No 31 of
2008) s 35.
Associate Professor Ho Peng Kee.
Sitting date 18 November 2008.
The Politics of Aristotle, translated by William Ellis (London, J M Dent & Sons Ltd,
1952) at p 19; see also the translation by Peter L Phillips Simpson (The University
of North Carolina Press, 1997) at p 27. In the Simpson translation it reads: “Hence,
(cont’d on the next page)
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Singapore Academy of Law Journal
(2009) 21 SAcLJ
55
v Dreyfus, Farwell J tells us that moneylending is “a perfectly
56
respectable form of business” although he acknowledges the
57
derogatory connotations carried by the term. The old Act largely
reflects the stereotypical view of moneylenders as a shady, unscrupulous
mob. In contrast, banks have long enjoyed a respectable reputation. In
58
Bangkok Bank Ltd v Cheng Lip Kwong, in the context of the use of
conclusive evidence certificates to determine the amount due under a
guarantee, Yong Pung How J (as he then was), referred to banks as
59
“honest and reliable”. As Farwell J said in Litchfield v Dreyfus: “Nobody
60
says that bankers are rascals because they lend money.” The negative
view of moneylenders can be seen in the provisions of the MLA 1985,
for instance, by requiring moneylenders to keep their accounts in a
61
bound book with numbered pages. This, the Act told us, was to prevent
the removal or replacement of pages. Furthermore, under the old MLA,
62
moneylenders could operate from only one place of business, they had
63
limited scope to advertise and were prohibited from charging
64
compound interest. In contrast, banks are able to operate from more
65
than one place of business and may compound interest even, in some
66
circumstances, without express agreement to that effect. The
moneylender’s loan had to be advanced by an account payee crossed
67
cheque and repayments from the borrower had to be by cheque,
68
money order or postal order.
10
The new Act liberates moneylenders from many of the previous
constraints. They may now apply for permission to operate from more
69
than one place of business, their books need no longer be kept in a
70
bound and paginated book, and the restriction on compound interest
is done away with although the Minister of Finance does have the power
to prescribe a maximum rate of interest and to regulate a number of
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
most reasonably is the art of usury hated, because it gets its property from money
itself and not from what money was supplied for. Money came into being for the
sake of exchange, but interest just makes the money itself increase.”
[1906] 1 KB 584.
[1906] 1 KB 584 at 590.
[1906] 1 KB 584 at 590.
[1989] SLR 1154.
[1989] SLR 1154 at [18].
[1906] 1 KB 584 at 590.
Moneylenders Act (Cap 188, 1985 Rev Ed) s 19.
Moneylenders Act (Cap 188, 1985 Rev Ed) s 6.
Moneylenders Act (Cap 188, 1985 Rev Ed) s 13.
Moneylenders Act (Cap 188, 1985 Rev Ed) s 18.
Subject to regulations made under the Banking Act (Cap 19, 2008 Rev Ed).
The leading case is National Bank of Greece SA v Pinios Shipping Co (No 1) [1990]
1 AC 637.
Moneylenders Act (Cap 188, 1985 Rev Ed) s 16(2).
Moneylenders Act (Cap 188, 1985 Rev Ed) s 25(2).
Moneylenders Act 2008 (No 31 of 2008) s 10.
Moneylenders Act 2008 (No 31 of 2008) s 24.
(2009) 21 SAcLJ
Moneylenders Act 2008
401
71
other matters. Currently, under the Moneylenders Rules 2009, the
interest cap applies only to small loans ($3,000 and below) to low
income individuals; the cap is at 12% if it is secured and 18% if
72
unsecured. The previously tight provisions relating to moneylender’s
advertisements have been relaxed in that advertising is no longer
73
restricted to bare details. Needless to say, advertisements must be
accurate and may not mislead; disclosure of certain details in any
marketing material is ordinarily required, such as the name of the
74
moneylender’s business and any conditions attached to an offered rate
75
of interest. Previous restrictions on the payment method in making the
advance and receiving repayment have been eased. The new Act
specifically contemplates that the borrower may repay the moneylender
76
in cash. In such an eventuality, the moneylender must “immediately”
77
provide a receipt to the payer. The power of a court to evaluate the
fairness of the interest charged remains: a loan contract may be
reopened by the courts if enforcement proceedings are brought by a
78
licensee. The prohibition on unsolicited loans is given more
79
prominence in the MLA 2008.
11
The provision making it an offence for an unlicensed
80
moneylender to intimidate the borrower has been retained in the new
81
Act. Harassing behaviour from loansharks or their agents is apparently
not uncommon. The Straits Times recently reported an increase in
loanshark harassment activities, with almost 4,000 cases in the first three
82
months of 2009. The problem has been raised in Parliament a number
83
of times in the last few years, with Members of Parliament voicing the
detrimental effects of harassment activities on members of their
constituency. A typical pattern of harassment in the Singapore
loanshark underworld is illustrated by two recent trials of harassment
84
offenders under the MLA 1985. It involves agents acting for loansharks,
71
72
73
74
75
76
77
78
79
80
81
82
83
84
Moneylenders Act 2008 (No 31 of 2008) s 37.
Moneylenders Rules 2009 (S 72/2009) r 11(2).
Moneylenders Act 2008 (No 31 of 2008) s 16.
Moneylenders Act 2008 (No 31 of 2008) s 16(2)(a).
Moneylenders Act 2008 (No 31 of 2008) s 16(2)(e).
Moneylenders Act 2008 (No 31 of 2008) s 21(4).
Moneylenders Act 2008 (No 31 of 2008) s 21(4).
Moneylenders Act 2008 (No 31 of 2008) s 23; Moneylenders Act (Cap 188,
1985 Rev Ed) s 22, s 23.
Moneylenders Act 2008 (No 31 of 2008) s 17; Moneylenders Act (Cap 188,
1985 Rev Ed) s 13(1).
Moneylenders Act (Cap 188, 1985 Rev Ed) s 33.
Moneylenders Act 2008 (No 31 of 2008) s 28.
“Loanshark Harassment Cases Rise Sharply” The Straits Times (17 April 2009).
Including 5 February 2009, 18 November 2008, 28 February 2008, 23 January 2007.
PP v Joseph Ong Dick Tat [2008] SGDC 178; PP v Celine Tang Shu Mei [2008]
SGDC 329; PP v Muhammad Taufik bin Ab Hamid [2009] SGDC 63.
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Singapore Academy of Law Journal
85
(2009) 21 SAcLJ
86
with colourful alias’s like “Tiger” and “Uncle”, writing “O$P$” (which
87
apparently means “owe money, pay money” ), along with the debtor’s
details in a conspicuous place such as a wall at or near the debtor’s
premises, accompanied by the splashing of paint on the gate or door of
88
the debtor’s property. The penalties for harassment by loansharks
under the MLA are ordinarily more severe than similar offences
89
committed by a person under the Penal Code. Threatening or alarming
behaviour by a loanshark (other than a body corporate) is punishable
with a fine of not less than $4,000 and imprisonment for up to three
years, and in the case of a repeat offence, imprisonment for up to six
90
years. The offender is also liable to be caned if a person was hurt or
91
92
93
property was damaged. By contrast, an assault or criminal force in
the absence of grave and sudden provocation is punishable with
94
imprisonment of up to three months and/or a fine of up to $1,500
while criminal intimidation is punishable with imprisonment for up to
95
two years, and a fine.
12
A new feature in the legislation is the requirement of a security
deposit of $20,000 in respect of each location of a moneylender’s
96
97
business; the deposit may be forfeited by the Registrar for a variety of
reasons, including the improper conduct of the moneylending
98
business. The regulatory powers of the Registrar of Moneylenders
under the new Act have been enhanced. For example, the Registrar may
issue directions to both a moneylender and an exempt moneylender for
99
the conduct of the moneylending business and the powers of the
Registrar on an inspection of the moneylending premises are spelt
100
out. Moneylenders must still give borrowers a note of their contract in
85
86
87
88
PP v Muhammad Taufik bin Ab Hamid [2009] SGDC 63.
PP v Wong Fui Yuen [2008] SGDC 230.
See PP v Muhammad Taufik [2009] SGDC 63.
These practices have also been referred to in questions raised by Members of
Parliament, for example, on 5 February 2009, 18 November 2008 and 28 February
2008.
89 Penal Code (Cap 224, 2008 Rev Ed).
90 Moneylenders Act 2008 (No 31 of 2008) s 28(1)(ii).
91 Moneylenders Act 2008 (No 31 of 2008) s 28(3).
92 Defined in s 351 of the Penal Code (Cap 224, 2008 Rev Ed), basically it involves
threatening behaviour.
93 Defined in s 350 of the Penal Code, it includes the illegal use of force to cause fear,
injury or annoyance.
94 Penal Code (Cap 224, 2008 Rev Ed) s 352.
95 Penal Code (Cap 224, 2008 Rev Ed) s 506. In more serious cases of intimidation,
such as threatening death, the penalty is harsher.
96 Moneylenders Act 2008 (No 31 of 2008) s 5(5)(c), s 6(4)(c), s 10(3)(c).
97 Moneylenders Act 2008 (No 31 of 2008) s 11.
98 Moneylenders Act 2008 (No 31 of 2008) s 9(1)(a)(iv) read with s 11(1).
99 Moneylenders Act 2008 (No 31 of 2008) s 26.
100 Moneylenders Act 2008 (No 31 of 2008) s 25; contrast Moneylenders Act (Cap 188,
1985 Rev Ed) ss 10A–10B.
(2009) 21 SAcLJ
Moneylenders Act 2008
403
101
a prescribed form. Now, a moneylender must also give the borrower
102
the terms in writing before granting the loan. Notably, he must explain
the terms of the contract to the borrower where the borrower does not
103
understand English. Banks would do well to take note of the
Legislature’s position on this point; previously, in Ri Jong Son v
104
Development Bank of Singapore Ltd, the Singapore High Court held
that it was “unduly onerous” to require a bank officer to bring an
exclusion clause to the attention of a Korean customer who did not
105
speak English. The moneylender under the new Act is required to
106
furnish a borrower with half yearly statements of account. Only
permitted charges, as prescribed by the Minister of Finance, may be
107
imposed by a moneylender. Under the Moneylenders Rules 2009,
these will extend to administrative fees on account opening, variation or
108
extension, late payment fees and recovery fees.
IV.
Tinkering versus fundamental change
13
So, the differences between the old and the new MLA are in the
detail, and not in the approach. Most of the changes, so far as they go,
are to be welcomed. The wisdom of focusing the protection afforded by
the MLA 2008 on consumers and non-corporate entities is debatable. Is
it correct that, for example, corporate borrowers do not need protection
from lenders with excluded moneylender status who may nevertheless
be unscrupulous? Some companies are small businesses, owned and run
by unsophisticated people who seek the benefits of corporate
109
personality and limited liability. The Report on Credit Contracts
produced in New Zealand in February 1977, which recommended the
repeal of their moneylending legislation, did not think that a
commercial loan should be excluded from scrutiny for unconscionable
110
conduct. Current New Zealand legislation in this area is consumer
111
focused but any credit contract can be reopened on the ground that it
112
is oppressive. Under the MLA 2008, there is potential for escape by
excluded moneylenders requiring individual loan applicants to
101 Moneylenders Act 2008 (No 31 of 2008) s 20; Moneylenders Act (Cap 188,
1985 Rev Ed) s 16.
102 Moneylenders Act 2008 (No 31 of 2008) s 19.
103 Moneylenders Act 2008 (No 31 of 2008) s 20(1)(b).
104 [1998] 3 SLR 64.
105 [1998] 3 SLR 64 at [36].
106 Moneylenders Act 2008 (No 31 of 2008) s 21(1).
107 Moneylenders Act 2008 (No 31 of 2008) s 22; Moneylenders Act (Cap 188,
1985 Rev Ed) s 26.
108 Moneylenders Rules 2009 (S 72/2009) r 12.
109 New Zealand, Report on Credit Contracts (Report 20: 1977).
110 New Zealand, Report on Credit Contracts (Report 20: 1977) at pp 62–63.
111 As defined in s 7 of the Credit Contracts and Consumer Finance Act 2003 (NZ).
112 Credit Contracts and Consumer Finance Act 2003 (NZ) Part 5.
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(2009) 21 SAcLJ
incorporate in order to avoid the Act. This fear is not far-fetched; it has
been noted that banks, in England at least, will ask an unincorporated
borrower to incorporate in order to avoid the unwelcome reach of the
113
Bills of Sale Act. It should be pointed out, however, that Singapore is
not alone in taking the view that protection should be focused on noncorporate debtors; the same view is reflected in the UK’s Crowther
114
Report and the legislative response to the Report, the Consumer
Credit Act. Similar type legislation in Australia and New Zealand is also
consumer focused. The rationale resonates with the concerns expressed
115
by V K Rajah J in City Hardware v Kenrich Electronics, namely, the
suffocation of legitimate commercial arrangements. If it is accepted that
the new categories of excluded lender do not warrant the scrutiny of the
Act, such loans should at least be subject to the court’s power to evaluate
them in terms of fairness and unconscionability, and reopen the
transaction.
14
More importantly, it is the adherence to the existing paradigm
of regulation which must be questioned. The cases discussed above, Olds
116
117
Discount v John Playfair, UDT v Kirkwood and City Hardware v
118
Kenrich Electronics illustrate a fact long recognised by the courts:
119
money can be raised in different ways. The moneylending and
pawnbroking legislation focus only on loan credit. The hire-purchase
legislation is concerned with sale credit but only in a narrow form. If the
object of the moneylending legislation is to protect those needing to
raise money from those willing to provide it, should not there be a
comprehensive review of credit law rather than tinkering with only one
form of fundraising, namely loans, and then only when it is done by one
species of lender, namely moneylenders?
15
Currently, there is piecemeal regulation of discrete credit
services available in Singapore. Aside from moneylenders, there is a
120
separate statute for hire-purchase. It is established that hire-purchase,
121
in the eyes of the law, does not constitute moneylending; in fact,
113 See Ellinger, Lomnicka & Hooley, Ellinger’s Modern Banking Law (Oxford
University Press, 4th Ed, 2006) at p 778; also New Zealand, Report on Credit
Contracts (Report 20: 1977) at p 63.
114 See the UK Department of Trade and Industry, Reform of the Law on Consumer
Credit (London, HMSO, CMND 5427, 1973) at p 11.
115 [2005] 1 SLR 733.
116 [1938] 3 All ER 275.
117 [1966] 2 QB 431.
118 [2005] 1 SLR 733.
119 See, for example, Chow Yoong Hong v Choong Fah Rubber Manufactory [1962]
MLJ 74 at 76C; City Hardware v Kenrich Electronics [2005] 1 SLR 733 at [41].
120 Hire-Purchase Act (Cap 125, 1999 Rev Ed).
121 Olds Discount v John Playfair [1938] 3 All ER 275 is regarded as authority for this
proposition, see dictum of Lord Denning MR in Premor Ltd v Shaw Brothers [1964]
1 WLR 978 at 980.
(2009) 21 SAcLJ
Moneylenders Act 2008
405
according to Professor Roy Goode in his discussion of the UK’s
Consumer Credit Act, the moneylending legislation was a “major factor”
122
in the development of hire-purchase transactions. There is another
123
statute for pawnbrokers, who in essence are moneylenders who take
goods as security for the loan. Their regulation has numerous
similarities with moneylenders: for example, persons engaging in certain
124
125
activities are deemed to be pawnbrokers; they must be licensed; they
126
must maintain a book of their transactions; and openly disclose their
127
rates. Then there are credit card transactions. They are issued in the
main by the reputable banks and are treated somewhat differently.
Unlike the activities of moneylenders and pawnbrokers, credit card
128
regulation is by subsidiary legislation made under the Banking Act.
The regulations include rules about credit limits, minimum income
requirements and unsolicited card offers. They require disclosure to the
cardholder of the cost of credit under the card but there is no restriction
on that cost. Reference to recent credit card statements reveals that
banks charge interest rates far exceeding the 18% limit currently
prescribed under the MLA 2008 for small unsecured loans to lower
income individuals. It is far more than the 20% that was prescribed by
129
the old MLA for loans outside of the regulatory net. Cash withdrawals
from a credit-card account issued by any of the big retail banks
currently attract a rate of interest in the region of 24% per annum from
the time of the withdrawal, and a service fee of 5% of the withdrawal or
$15, whichever is the greater. If the billed balance on the account is not
fully discharged, the interest rate is the same (24%) and the usual
interest free period for unbilled transactions may be lost. On top of that,
if the minimum payment is not made by the due date, there is a late
payment charge, typically about $45–$50. Even worse, if the interest is
not paid, the bank may be entitled to compound interest, leading to
130
interest on interest the following month. Some of these points were
highlighted in another recent article in the press, entitled “Credit Card
122 Goode: Consumer Credit Law and Practice vol 1 (R M Goode gen ed) (London,
Butterworths, updated to 2000) at para 1.7.
123 Pawnbrokers Act (Cap 222, 1994 Rev Ed).
124 Pawnbrokers Act (Cap 222, 1994 Rev Ed) s 3.
125 Pawnbrokers Act (Cap 222, 1994 Rev Ed) s 8.
126 Pawnbrokers Act (Cap 222, 1994 Rev Ed) s 14.
127 Pawnbrokers Act (Cap 222, 1994 Rev Ed) s 14.
128 Banking Act (Cap 19, 2008 Rev Ed) s 78(2).
129 Moneylenders Act (Cap 188, 1985 Rev Ed) s 23(5).
130 Since National Bank of Greece SA v Pinios Shipping Co (No 1) [1990] 1 AC 637, the
bank’s right to compound interest is wide although there are cogent arguments
that it has limitations. To avoid doubt, banks may contract for the right to
compound interest. At least three of the credit card terms and conditions surveyed
for this purpose, contract for compound interest.
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Singapore Academy of Law Journal
Loan Sharks” by Conrad Raj in Today newspaper,
132
charges as “exorbitant, even usurious”.
(2009) 21 SAcLJ
131
who labels the
16
Some of these apparent double standards were raised in
133
Parliament in November 2003. The then Deputy Prime Minister and
Minister for Finance, Mr Lee Hsien Loong, said that the disparity in
treatment was justified because moneylenders lend at the bottom of the
market while credit cards are targeted higher up at persons with an
annual income of at least $30,000. The latter were capable of making
their own decisions, Mr Lee said. Some six years later, a period which
has seen an escalation in the cost of living, people with a monthly
income of $2,500 ($30,000 per annum) are likely to find themselves in a
deteriorating spiral if they start to incur the late payment fees and high
interest rates on their credit card accounts. The MLA 2008 has reduced
the disparity of treatment between moneylenders and credit card
issuers, for example, in regard to compound interest and interest caps,
but it is suggested that a holistic approach would be preferable. Another
issue in credit card regulation in Singapore, which does not ordinarily
arise in the context of moneylending, pawnbroking or hire-purchase, is
the potential liability of the cardholder for unauthorised transactions.
The Consumer Credit Act in the UK limits the cardholder’s liability in
134
most cases to £50. In Singapore, credit card terms and conditions may
exempt the cardholder from liability after notification of the lost card to
the bank but he is commonly liable for any transactions before
notification.
17
A comprehensive statute, aimed primarily at consumers, would
be able to reflect, across the board, the modern view of acceptable credit
practices, whether under the guise of moneylender, pawnbroker, credit
seller or other credit giver. Moneylenders may take security for a loan; if
the security is a pledge, they are in effect, pawnbrokers. The distinction
between a loan that is used to purchase a chattel and a deferred payment
scheme for the purchase of the same chattel is artificial. An umbrella
statute would be able to take advantage of these overlaps. Undoubtedly,
some provisions unique to certain types of credit will have to remain,
since they all have their peculiarities (rules pertaining to the pledge of
goods in pawnbroking are an example); but there are advantages of
consolidation, consistency and efficiency in bringing all credit
regulation under one roof.
131
132
133
134
Today (27 April 2009).
Today (27 April 2009).
Sitting date 10 November 2003.
Consumer Credit Act 1974 (UK) ss 83–84. The Act limits liability to £50 or the
credit limit, whichever is the lower; this will commonly be the cap of £50.
(2009) 21 SAcLJ
Moneylenders Act 2008
407
18
The UK, Australia and New Zealand have largely taken this
consolidation step and replaced their moneylending, hire-purchase and
135
other credit legislation with more general, consumer focused statutes.
A prominent feature of the legislation in all three countries is the
emphasis on transparency about the cost of credit, so-called “truth in
136
lending”.
19
The pawnbroking case is important in another way; it illustrates
(at the street level) the interconnection between loans and property
transactions. As Professor Goode has commented in relation to the
137
experience of the UK’s Crowther Committee, once embarking on this
reform mission, there is no logical reason to stop at an overhaul of the
law relating to credit terms. Credit is usually accompanied by some form
of security, an area long overdue for revision. Discrepancies in the rules
relating to the requirement of registration of a security over an asset, the
effect of registration and the priority of competing security interests are
unsatisfactory and undermine a healthy economy. A good starting point
would be the Bills of Sale Act, which has regulated mortgages over an
138
individual’s chattels for more than 150 years in the UK and nearly 125
139
years in Singapore. The Crowther Committee in the UK made reform
proposals in this regard which were not implemented by the
140
141
142
Government. The Bills of Sale Acts in the UK and in Singapore
remain in force. Its cumbersome procedures, preclusion of mortgages
over future acquired property and general opacity, deter lenders from
143
transactions which would be ensnared by it. Alas, a revision of the law
relating to security for loans would be a mammoth task, one which
144
Singapore is not alone in shying away from.
135 Consumer Credit Act 1974 (UK); Consumer Credit Code (Australia); Credit
Contracts and Consumer Finance Act 2003 (NZ).
136 See the UK Department of Trade and Industry, Reform of the Law on Consumer
Credit (London, HMSO, CMND 5427, 1973) at p 12.
137 Goode: Consumer Credit Law and Practice vol 1 (R M Goode gen ed) (London,
Butterworths, updated to 2000) at para 1.41.
138 Starting with the UK Bills of Sale Act 1854.
139 The legislation was introduced by Straits Settlements Ordinance XII of 1886 with
effect from 1 November 1886.
140 See the UK Department of Trade and Industry, Reform of the Law on Consumer
Credit (London, HMSO, CMND 5427, 1973) at pp 8–9.
141 The UK Bills of Sale Acts of 1878 and 1882.
142 Bills of Sale Act (Cap 24, 1985 Rev Ed).
143 This is acknowledged in the UK Department of Trade and Industry, Reform of the
Law on Consumer Credit (London, HMSO, CMND 5427, 1973) at p 5 and see, for
example, Goode: Consumer Credit Law and Practice vol 1 (R M Goode gen ed)
(London, Butterworths, updated to 2000) at para 1.42 which refers to the
“fearsome technicalities” of the Bills of Sale Acts, also Ellinger, Lomnicka &
Hooley, Ellinger’s Modern Banking Law (Oxford University Press, 4th Ed, 2006) at
p 778.
144 The recommendations made in 2005 by the UK Law Commission on Company
Security Interests, Report (No 296, 2005) have to date not been implemented.
(cont’d on the next page)
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(2009) 21 SAcLJ
20
Returning to the MLA 2008, it allows moneylenders to take a
more respectable place in the financial services sector and compete on a
more level playing field with other lenders. Moneylenders do, after all,
meet a credit need in our society for those with a poorer credit rating
who are unable to obtain finance from the more institutionalised
lenders, namely, banks and finance companies. The changes in the
legislation have apparently been welcomed by the moneylending
145
industry and both the Government and moneylenders hope that the
146
changes will help to “divert” borrowers away from loansharks. This
will be facilitated by giving licensed operators greater visibility through
advertising and multiple business locations, greater flexibility to charge
market rates, and greater efficiency in the administration of their
business. It is hoped that the new legislation will also reduce the abuse
of the unlicensed moneylender plea.
According to the Law Commission’s website (<www.lawcom.gov.uk> (accessed
19 July 2009)), the Department of Trade and Industry has not reached a final
decision on implementation and consultation is ongoing.
145 See Carolyn Quek, “Taking the Fight to Ah Long” The Straits Times (20 November
2008).
146 Per Senior Minister of State for Law (Associate Professor Ho Peng Kee) at the
second reading of the new Moneylenders Bill, 18 November 2008.