Introduction
In the recent case of Ang Ai Tee v Resource Credit [2017] SGHC 159, the High Court set aside the defendant's statutory demand for repayment of debt on the ground that the loan refinancing scheme imposed excessive interest and that the loan transactions were unconscionable or substantially unfair.
Background
On 1 October 2015, significant changes to the interest and charges that licensed moneylenders can impose on personal loans were made in the Moneylenders (Amendment) Rules 2015 (MLR 2015). The changes included a cap on the administrative fee at 10% of the loan principal.
Holding
This case involved a loan refinancing scheme in which the defendant, Resource Credit Pte Ltd, charged a 10% administrative fee each time the same loan to the plaintiff, Ang Ai Tee, was refinanced, for a total of 18 times.
In determining whether excessive interest was charged and whether the loan transactions were unconscionable or substantially unfair, the 18 transactions were taken as a whole instead of being treated as 18 separate transactions which each ostensibly complied with the MLR 2015.
The interest charged was found to be excessive as the administrative fee was not a "permitted fee" under s2 of the Moneylenders Act. The administrative fee was unjustified as the defendant did not provide fresh funds to be administered in each refinanced loan. As such, the administrative fee was construed as a form of "interest". Further, if the defendant's claim were to succeed, the plaintiff would be paying more than double the amount of the principal sum. This would be in breach of r12A of the MLR 2015 which only allowed the defendant to claim for interest, late interest or permitted fees of up to an amount equivalent to the principal sum.
The loan transactions were unconscionable or substantially unfair as the plaintiff's liability with loan refinancing was more than double that without loan refinancing. Additionally, the defendant had entered into the loan refinancing scheme with the plaintiff clearly to skirt the boundaries of MLR 2015 as the defendant implemented the loan refinancing scheme only for debts created after MLR 2015 was introduced. Therefore, the defendant's intention to profit from the repeated imposition of administrative fees for each refinanced loan was obvious.
Conclusion
The High Court has shown that it will adopt a purposive approach to protect borrowers from falling prey to "creative" loan refinancing schemes of unscrupulous moneylenders. Whilst there may be instances where moneylenders genuinely wish to assist borrowers by offering loan restructuring, this is definitely not the case when moneylenders know that their loan refinancing schemes would make it difficult for borrowers to pay back the principal or interest at the end of the term of the loan and would the borrowers have no choice but to pay the administrative fee (for refinancing) to prevent the moneylenders from calling on the loans.
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