LICENSED moneylenders, hard hit by a new Bill that was passed in Parliament on Monday, say they are now left with no choice but to close down.
The new law disallows Housing Board home owners from using the proceeds of selling their homes as collateral for loans, or for the payment of debts, except under approved circumstances.
Simply put, this means moneylenders are now no longer able to lodge caveats against flats to ensure they get first bite of the proceeds from the property's sale if the borrower cannot pay up.
The Straits Times understands that at least 10 moneylenders who focus on loans for home sellers will be putting up the shutters in the coming weeks.
Moneylenders' Association of Singapore president David Poh said at least 30 members in his association are extremely discouraged by the changes.
In May, new rules prohibiting licensed moneylenders from working as property agents, and vice-versa, were announced.
One affected moneylender, who declined to be named, said she used to lodge caveats for the four cases she handles on average monthly.
'Now the law has closed all our options, we have no choice but to wind up,' said the 37-year-old.
Another moneylender, who wanted to be known only as Mr Tan, 44, said he will now focus on his property business. He started a moneylending arm late last year to complement his realty work.
'Now I just want to collect the loans I have given out, and close down the moneylending firm,' he said, adding that he used to lodge about two caveats monthly. 'Without caveats as security, who wants to risk lending out large amounts?'
The growing practice by some moneylenders of exploiting cash-strapped home owners desperate for loans was first flagged in Parliament in April.
Industry players estimate that of the 260 licensed moneylenders in the market, at least 30 per cent regularly lodged caveats on their borrowers' homes. There were 556 registered resale applications with caveats lodged by moneylenders in just the first half of this year, a spike from 546 for the whole of last year and just 12 in 2008.
Mr Poh's committee held a meeting yesterday to discuss the impact of the new rules. 'Those affected are rethinking how to continue their business,' he said, adding that most moneylenders will raise their interest rates by at least 10 percentage points per annum, now that they do not have the security of caveats.
The new rules could also put loansharks back in business. 'The demand for loans is still there. But if the people can't get loans, they will turn to the illegal lenders,' said Mr Poh.
Source: Straits Times, 21 Jul 2010