Law ministry imposes 3-day cooling-off period for loans taken from licensed moneylenders
During the cooling-off period, borrowers will be allowed to cancel a loan at reduced cost.
The Ministry of Law (MinLaw) has introduced a mandatory three-day cooling-off period for unsecured loans, excluding business loans, taken from licensed moneylenders, starting from September 15, 2022. This cooling-off period enables borrowers to cancel loans at a reduced cost, allowing them to reconsider credit needs that may sometimes be made impulsively.
Previously, moneylenders could retain the full loan approval fee and any accrued interest if a borrower canceled a loan. However, from September 15, moneylenders will only be able to keep a portion of the loan approval fee, up to specified limits, to cover overhead and due diligence costs. For loans up to $5,000, moneylenders can retain a maximum of $50, while for loans above $5,000, they can retain up to 3.5% of the principal amount, not exceeding the loan approval fee.
For instance, a $1,000 loan would result in a repayment of up to $950 if canceled within the cooling-off period, encompassing the $900 received after the 10% loan approval fee plus the $50 maximum fee retention. Similarly, a $10,000 loan would lead to a repayment of up to $10,000, comprising the $9,800 received after a 2% loan approval fee and the $200 maximum fee retention.
The Credit Association of Singapore (CAS), representing licensed moneylenders, collaborated with MinLaw in developing this cooling-off period framework. The association aims to balance granting borrowers an opportunity to reassess their credit needs with ensuring moneylenders still receive compensation for the work done during loan approval.
CAS President P. Renganathan welcomed the cooling-off period, stating that it establishes a clear and consistent right for borrowers as an industry-wide standard. Similarly, Blessed Grace Social Services (BGSS) Director of Operations Choy Mei Kuen noted that the cooling-off period would benefit borrowers who take loans impulsively or intend to gamble, providing an option to cancel the loan with a minimal fee.
However, BGSS Director of Operations Choy Mei Kuen also pointed out that the cooling-off period may not be helpful for borrowers who seek assistance at BGSS due to multiple loans and difficulty in repaying. Jean Lee, Manager at Adullam Life Counselling, suggested that a five-day cooling-off period would be more beneficial, as it would give borrowers more time to consult family or a counsellor before making a decision.
MinLaw emphasized that they will strive to maintain a balance between protecting borrowers and ensuring reasonable access to credit from licensed sources, and that the cooling-off period will be implemented from September 15, allowing moneylenders sufficient time to adjust their processes and systems.
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