The Bhutanese Leading the way.
This is after amendments to the RMA’s money lending rule
Starting from 1st April 2017 till date, the Judiciary, as per the Private Money Lending Rule and Regulation (PMLR) 2016, declined to accept any money lending cases for loans made above Nu 500,000.
Under the PMLR rules only money lenders who registered with Royal Monetary Authority (RMA) could carry out the money lending business with strict conditions.
However, the amended Rules and Regulations for Registered Private Money Lenders (RRRPML) 2021 makes a major departure from the above and under a new section (12.2) it says the courts may accept all other monetary cases outside the purview of the RRRML.
This, in short, means that except for the two money lenders who registered themselves with RMA all other money lenders can carry on as before as the money lending rules of RMA does not apply to them anymore.
The RRRML has said that the courts may come with a separate standard of procedure (SOP) (formulated and implemented by the Judiciary) and adjudicate the monetary suits, award penalties and judgments in accordance with other relevant laws of the country.
However, this gentle attempt by the RMA to get the judiciary to apply some sort of control on their end has not been accepted by the Judiciary.
Supreme Court Registrar Sonam Gyeltshen said that the judiciary will not have any separate SOPs, but it will take up monetary cases like before prior to 1st April 2017 under the various relevant laws.
He said under the earlier rule innocent lenders were being victimized and there were some ‘crooked borrowers’ who were taking advantage as the courts had not been accepting monetary cases since 1st April 2017.
The Royal Monetary Authority approved the amended rules and regulations for registered private money lenders 2021 during its 108th Board meeting held on August 27th, 2021. It shall come into force on 1st November 2021.
The amended version (2021) is the third revision of the rules and regulations for registered private money lenders.
Damche Tenzin, the Chief General Counsel of RMA said the amended RRRPML has jurisdiction over registered private money lenders only.
He said cases related to unregistered private money lenders shall fall beyond the scope of the RRRPML and will be handled by the Judiciary.
“Previously we tried to cover the legislation for both registered and unregistered private money lenders, but some people started questioning legitimacy of the RMA’s rules and regulations,” said Damche Tenzin.
“People complained about how the RMA could possibly enforce its own rules and regulations on those who were not affiliated or registered with the RMA. The RMA exercises full authority over financial institutions and registered private money lenders only,” he added.
Damche Tenzin said, “There have been situations where a borrower takes advantage of the old PMLRR. The court used to dismiss the cases involving unregistered money lenders which resulted in the lender losing all his life savings because the court refused to acknowledge the case on the grounds that the lender has not registered with the RMA. But now the court will also accept cases not registered with the RMA based on clause 12.2.”
Upon being asked if there have been any cases or disputes, Damche Tenzin remarked, “There has not been a single case filed against a registered money lender. The ones involved in disputes and complaints are all unregistered money lenders.”
The new RRRPML made some amendments, but for all purposes it will apply to only to the two registered money lenders who also have the option of withdrawing.
Ironically, while the unregistered money lenders can now carry on as before with all their advantages and no limits, the RMA has come up with more rules for the registered lenders in the RRRPML.
The new RRRPML under clause 4.8 and 4.9 emphasizes the duty of the registered private moneylender and says that he/she shall not make and sign fraudulent agreement as well as refrain from lending money beyond the ceiling prescribed by the authority. All transactions shall be duly routed through banking channels and not cash.
Regarding the Duty of the Burrower, there has been addition of three new clauses 5.5, 5.6 and 5.7 which states that the borrower shall not accept interest more than 15% per annum (failure of which results in lender forfeiting 25% of the principal amount), is prohibited in making fraudulent agreement with registered lender, and prohibited from making bill of exchange to repay loan without sufficient balance in bank account.
Damche said there have been incidents where people abused a particular clause (3.2) of the old PMLRR which stated that lender can lend Nu 90,000 to a person without having to register at RMA.
The lender used to lend Nu 90,000 to multiple persons without obtaining certificate. Now it has been amended to rectify this complication such that the lender can either lend Nu 90,000 to a single burrower or a total of Nu 90,000 to multiple burrowers. However, this section will be irrelevant for a non registered lender as the court will accept all monetary cases.
Other amendments include clause 3.18 which says a lender will have to seek a special approval if they want to lend beyond a total of Nu 5 million. Section 6.3 says a lender is not allowed to club his interest with the principal and charge more and section 8.1 says a middle person is not allowed between a registered private money lender and a burrower.
All phrases saying “Authorized Private Money Lender” in the former rules has been replaced with “Registered Private Money Lender”.
The original 2017 rules came up with the noble intent of curbing the rampant practice of private money lending that charged very high interest rates and led to many people losing their property and savings.
However, the rules never really took off as money lenders started backdating agreements prior to the rule, and they even got borrowers to issue backdated cheque so that lenders would be liable to pay or face prosecution.
In the mean time some lenders did not know about the RMA rules and they lent higher amounts which they were unable to recover as the courts did not accept the cases.
