Everyone, including foreign domestic workers, may need urgent loans at some point in their life. With this, housemaids usually turn to their employers for advance payments if they need cash urgently.
However, not all employers are so kind to always lend them money if they do not manage their finances properly. As such, they would inevitably opt for licensed money lenders to get foreigner loans. (I believe you’ve certainly heard of money lenders like Lending Bee, ValueMax Credit, Singa Credit, EMVertex Credit, Credit 21 etc…)
Licensed Money Lender, yes or no?
There is a heated debate on whether housemaids should lend from licensed money lenders. One side argues that it may cause issues when they are unable to make timely repayments. However, another side argues that they are better-off lending from licensed money lenders who are well-regulated by the government compared to loan sharks.
Those who support licensed money lenders argue that housemaids would inevitably want to borrow money at some point. If they can’t borrow from regulated bodies like licensed money lenders, they would go for loan sharks instead.
There is no need to mention that loan sharks would cause huge troubles to the employers of housemaids if they do not pay up. Just like what you see on TV, they would paint your door red or harass your family members.
Increasing Lending Activity to Foreign Domestic Workers
Nevertheless, there had been a massive increase in the lending activities to housemaids by licensed money lenders since 2017. Many foreign domestic workers are facing a debt trap and are unable to make timely repayments to the money lenders and this had cause issues for employers who reside with them as well.
The Registry of Moneylenders intervened in October 2018 by setting up stricter regulations but they were not effective. In light of this, a new and tougher set of rules had been set up effective 16 July 2019.
Read more: Are Licensed Money Lenders Safe?
New Regulations for Licensed Money Lenders
A new set of rules had been imposed by the Registry of Moneylenders to tackle the rise of lending activities towards foreigners. By 16 July 2019, licensed money lenders would have to officially follow these rules: (last one is most important)
• New Loan cap for foreigner loans
A foreigner earning less than $10,000 per annum ($833 per month), would only be allowed to borrow a maximum of $500 unsecured loans from all licensed money lenders COMBINED.
Although this would harm the businesses of licensed money lenders, it would inevitably reduce the lending activities to foreign workers.
However, such a ruling may have its limitations. When these foreign domestic workers become desperate for money, would they seek for loan sharks as an alternative?
• Prohibition of foreigners as guarantors
When a person has a bad credit or needs larger foreigner loans, licensed money lenders would require them to have a guarantor and this is the norm. However, the new regulation states that guarantors must be a Singapore resident or PR.
This would make it harder for foreigners to get a loan and hence lead them to become more desperate. They would have to seek for other means to borrow money.
• Restrictions on targeted advertising
As of 16 July 2019, licensed money lenders are no longer allowed to place advertisements targeting financially vulnerable groups like foreign domestic workers or low-income earners.
They cannot display ads like those mentioning “we welcome foreign domestic workers” or “those without income could apply”. This would certainly help reduce the lending activities towards foreign domestic workers applying for foreigner loans.
• Restrictions on referrals
Licensed money lenders are now unable to refer clients to each other as a way of “cooperating”. This is a widespread tactic used by them to hinder borrowers to repay their loans in full.
For example, if a borrower wants to lend S$4,000, licensed money lender A may only lend them S$2,500 and ask them to lend the remaining S$1,500 from licensed money lender B. This way, they are charged relevant fees TWICE.
With this new restriction in place, they are now unable to “cooperate” and “harm” borrowers.
• Caps on Number of Foreign Borrowers
This is the single most impactful regulation towards the licensed money lender industry so far. With effect on 15 August 2019, a licensed money lender would only be allowed to lend to a maximum of 15 distinct foreign borrowers in each month.
In addition to that, they are only allowed to lend to a maximum of 50 distinct foreign borrowers in each year. This had effectively limited the number of loans licensed money lenders could lend to foreigners. With this, the requirements for foreign borrowers would definitely become higher as licensed money lenders would prefer to lend to quality borrowers with their limited quota.
These new regulations are enforced to limit lending activities towards foreign domestic workers.
What do you think about such rules? Are they going to be effective in solving the issue of rampant borrowing from housemaids or do you think they would turn to loan sharks instead?
K. Shanmugam, our Law and Home Affairs Minister, mentioned that the police have received 460 reports of loan shark harassment that came from Foreign Domestic Workers between 2013 and September 2018. In comparison, there are no reports of harassment by licensed money lenders in the same period.
To be fair, which would be a better choice?
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