In the recent case of Ang Ai Tee v Resource Credit  SGHC 159, the High Court upheld the appeal of a plaintiff borrower who sought to set aside a statutory demand for the sum of $135,879.96, which was issued by the defendant licensed moneylender pursuant to a series of refinancing transactions introduced by the defendant. At the crux of this case was the refinancing scheme in which the defendant imposed a 10% administrative fee for every loan refinancing arrangement.
In deciding whether to set aside the statutory demand, the High Court had to deal with the following question: Is there a genuine triable issue that the refinancing loans contain excessive interests and the transactions are unconscionable or substantially unfair, such that the court can re-open the loan transactions?
The Honourable Justice Tan Siong Thye set aside the statutory demand as he held that pursuant to Section 23 of the Moneylenders Act (Cap. 188), the court is empowered to re-open the refinancing transactions and examine the merits of the refinancing transactions, given that the interest charged in respect of the loans are excessive and the transactions are unconscionable or substantially unfair.
Covenant Chambers LLC acted for the successful plaintiff-appellant.
On 1 October 2015, the Ministry of Law introduced significant changes to the moneylending landscape in the form of the Moneylenders (Amendment) Rules 2015 (GN No S 567/2015) (the “Moneylenders Rules 2015”) which, inter alia, introduced the following interest rate and fee caps:
- Administrative fee capped at 10% of the loan principal;
- Interest rate capped at 4% per month;
- Late interest rate capped at 4% per month; and
- Late fees capped at $60 per month.
Unlike its predecessors, the Moneylenders Rules 2012 (GN No S 95/2012) and the Moneylenders Rules 2009 (GN No S 72/2009), which did not permit licensed moneylenders to charge administrative fees, the Moneylenders Rules 2015 permitted the licensed moneylenders to charge an upfront administrative fee of maximum 10%. After the Moneylenders Rules 2015 came into force, licensed moneylenders began to abuse the rule on administrative fee by offering short-term loans which are repeatedly refinanced such that borrowers do not repay any part of the principal or interest, but simply a 10% “administrative fee” repeatedly. The Registry of Moneylenders denounced such refinancing arrangements in Registrar’s Directions No. 1 of 2016 and Registrar’s Directions No. 1 of 2017 and ordered that the licensed moneylenders cease such conduct immediately.
The case revolved around such refinancing arrangements. The plaintiff was a customer of the licensed moneylender. Prior to the introduction of the Moneylenders Rules 2015, the plaintiff borrowed several loans from the defendant which were not refinanced. However, after the Moneylenders Rules 2015 was introduced, the parties entered into a series of 18 loan transactions ranging from a day to a month, out of which 17 were loan renewal transactions. Out of the 17 refinancing loans, only three involved an increase in the principal (by $10,000, $60,000 and $8,000).
On 5 October 2015, the plaintiff took up a loan for the principal sum of $50,000, repayable the next day. When the plaintiff was unable to meet her payment obligations, the defendant persuaded her to refinance her loan by paying, inter alia, a 10% administrative fee. Just like this, the loan was renewed 17 times, which resulted in the plaintiff paying more than $211,856 in repayment, when the aggregate principal borrowed was only $128,000. The defendant claimed a further sum of $135,879.96, allegedly owed by the plaintiff pursuant to this series of refinancing transactions by way of a statutory demand, which formed the subject matter of the plaintiff’s application to set aside the same.
Each of the loan renewal transactions are supported by separate contractual documentation and thus appeared to be discrete loans. The charges and interest rates imposed on the transactions are within the legislatively prescribed caps of administrative fee of 10%, interest of 4% per month, late interest of 4% per month and late charge of $60 per month. The defendant had thus ostensibly complied with the requirements of the Moneylenders Act and the Moneylenders Rules 2015.
Whether the court can re-open the loan transactions
Section 23(1) of the Moneylenders Act provides that the court shall re-open a transaction where it is satisfied that the interest or late interest charged is excessive and the transaction is unconscionable or substantially unfair.
The High Court held that although the Moneylenders Rules 2015 does not prohibit the defendant from charging a 10% administrative fee for a refinancing loan, whether a defendant may do so depends on whether the effects of loan refinancing generate excessive interest for the loans and made the transactions unconscionable or substantially unfair.
After examining the 18 loan transactions, the High Court held that the loans had significant ill effects. The High Court observed that in normal situations, refinancing is done to benefit the party that seeks it, but in the circumstances, the defendant benefited much more than the plaintiff did. While the administrative fee was meant to be a once-off fee, the defendant circumvented the rule by imposing administrative fees more than once per month through multiple refinancing loans. Consequently, the refinancing snowballed the plaintiff’s loans rapidly to a humongous proportion.
The defendant’s administrative fee for loan refinancing under the circumstances is considered an excessive interest
The High Court held that in situations of loan refinancing where the moneylender does not provide fresh funds but still charges the same 10% administrative fee, it cannot be considered a “permitted fee” under Section 2 of the Moneylenders Act as there is “nothing afresh for the moneylender to administer.” Instead, the High Court held that the purpose of the fee was to “entice the plaintiff to continue paying a relatively smaller amount than that she would have had to pay, i.e. the principal, if the defendant called on the entire owed sum outright.” As the High Court found that the administrative fee was not a permitted fee, it held that it was a form of additional interest within the definition of “interest” under Section 2 of the Moneylenders Act.
The loan transactions are also unconscionable and substantially unfair
The High Court observed that although the 18 loans were documented as separate contracts and aggregate $1,558,000 on paper, the amount that the defendant actually advanced to the plaintiff was only $128,000. However, the defendant imposed charges on the plaintiff based on the sum of $1,558,000. Thus, the High Court opined that it should not focus narrowly on the individually refinanced loans but consider the broader implication of the 18 loans to ascertain whether there was excessive interest and whether the transactions were unconscionable or substantially unfair. In that regard, the court held that there was an absence of substantial fair play, as there was a stark difference in the charges the plaintiff would have to pay in a scenario with the refinanced loans ($195,844.60), and a scenario without the refinanced loans ($92,182.16). Accordingly, the High Court found that in substance, an interest payment of about 10% was levied on every refinanced loan, under the guise of an administrative charge, and thus the presumption in Section 23(6) of the Moneylenders Act that the interest charged was excessive and the transaction is unconscionable or substantially unfair was triggered.
The High Court further noted that it was pertinent that the defendant did not refinance the loans that the plaintiff took up with the defendant before the Moneylenders Rules 2015 came into operation, even when the plaintiff encountered difficulty in repaying one of those loans which was eventually paid via a settlement agreement with the defendant. The High Court was of the view that the reason for the difference was that the Moneylenders Rules 2012 did not permit an administrative fee to be charged, and the defendant thus unscrupulously utilized the refinancing scheme to impose excessive interest repeatedly.
The High Court further held that the administrative fee infringed Rule 12A of the Moneylenders Rules 2015 which prohibits the moneylender from recovering from a borrower, on account of interest, late interest or any permitted fee, an amount exceeding the principal of the loan. As the plaintiff had already paid $195,844.60 in administrative fees, interest and late fees when the overall aggregate of the actual funds provided to the plaintiff was only $128,000, Rule 12A of the Moneylenders Rules 2015 was breached.
Loan refinancing with administrative fees was not foreseen by Parliament
The High Court was further of the view that Parliament did not intend for moneylenders to unjustly enrich themselves through the imposition of administrative fees on the same principal sum. Instead, the rationale for the introduction of the Moneylenders Rules 2015 was to cap and restrict moneylenders’ fees.
Further, although the Moneylenders Rules 2015 did not directly address loan refinancing schemes, the Registrar’s Directions No. 1 of 2016 and Registrar’s Directions No. 1 of 2017, which are directions issued by the Registry of Moneylenders to inter alia, denounce such refinancing arrangements, clarified what the Moneylenders Rules 2015 means for such schemes.
The High Court adopted a purposive approach to interpreting the Moneylenders Act and Moneylenders Rules 2015, one of the objects of which was to protect borrowers’ debts from spiralling out of control. The court further relied on the Advisory Committee on Moneylending Final Report 2015, which stated that the purpose for the upfront administrative fee is to defray the costs of operating the moneylending business, which includes the cost of loan defaults. Although the Moneylenders Rules 2015 did not directly address loan refinancing schemes, the court opined that the Registrar’s Directions No. 1 of 2016 and Registrar’s Directions No. 1 of 2017 clarified what the Moneylenders Rules 2015 means for refinancing schemes. Thus, the defendant not only had to comply with the letter of the law, but with the spirit of the law as well.
Further, the High Court pierced through the label of “refinancing” which was creatively employed by the defendant to justify the legitimacy of the “loans.” The High Court ascertained the true nature and purport of the “refinancing” transactions, and found that they were unconscionable and substantially unfair to the plaintiff.
Maintaining the balance between the interests of the borrower and the moneylender
Parliament has repeatedly emphasized that in crafting legislation to regulate the moneylending industry, it seeks to strike a balance between two competing considerations: ensuring that it is not commercially unviable for licensed moneylenders to service borrowers with high credit risk (which means interest rates should not be too low), and providing borrowers with adequate protection (which means interest rates should not be too high). Thus, when deciding whether fees or interest rates charged by a moneylender are excessive, a court should always be cognizant of the need to balance the interests of the borrower and the moneylender.
The High Court’s decision is commendable in this regard. Although the High Court eventually found in favour of the plaintiff, the High Court rightly acknowledged that moneylenders should be allowed to strive to profit within the boundaries of the law. However, the High Court found in the circumstances that the defendant was “not merely seeking to rescue its arrangement from business unviability,” but was “less than scrupulous in the loan refinancing scheme and had crossed the unconscionability threshold by imposing excessive interest rates,” and thus found in favour of the plaintiff.
Not a blanket prohibition on loan refinancing schemes
The High Court’s decision should not be read as introducing a blanket prohibition on loan refinancing schemes. In fact, both the High Court and Registrar’s Directions No. 1 of 2017 acknowledged that there might be instances where moneylenders genuinely wish to assist a borrower by using loan restructuring. The court further opined that the series of loans could not be accurately described as “loan refinancing” since the loan sums and the administrative fees were largely the same. Thus the evil that the Registry of Moneylenders and the High Court targeted was refinancing schemes in which no fresh funds are disbursed, but administrative fees are nevertheless repeatedly charged.
It is possible that the Registrar of Moneylenders could commence investigations into the the conduct of the defendant Resource Credit Pte Ltd since the High Court had found that it had entered into unconscionable and substantially unfair transactions with the plaintiff. Should the Registrar find that any licensed moneylender is conducting or has conducted its moneylending business in an improper or unsatisfactory manner, the Registrar may revoke its licence or suspend its licence for such period as he considers appropriate.
Second, the plaintiff could commence further legal proceedings against Resource Credit Pte Ltd seeking a return of the monies that have been overpaid. Under Section 23(3) of the Moneylenders Act, the court is empowered to inter alia, order the moneylender to repay any excess paid by the borrower, or set aside wither wholly or in part, or revise or alter, the contract for the loan.
The High Court was sitting in the capacity of a bankruptcy court and was thus only concerned with whether the plaintiff’s case raises genuine triable issues such that the statutory demand in respect of the debt should be set aside. The court did not have to rule on the merits of the plaintiff’s case. Therefore, it remains to be seen whether borrowers like the plaintiff, who were victimized by unscrupulous loan schemes, can successfully recover in court via Section 23 of the Moneylenders Act the administrative fees paid to licensed moneylenders in respect of refinancing arrangements.
However, it is noteworthy that the High Court appeared unequivocal in finding that Rule 12A of the Moneylenders Rules 2015 and Section 23 of the Moneylenders Act had been infringed, and not merely that there were genuine triable issues that legislation had been infringed. Borrowers subject to moneylenders’ refinancing schemes may thus find in the High Court’s decision a ray of hope.