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Moneylending: Caps on interest rates and late fees among recommendations accepted

SINGAPORE — An upfront administrative fee of not more than 10 per cent of the loan principal and a 4 per cent cap on nominal interest rate per month regardless of a borrower’s income were among some of the key recommendations announced today (May 29) by an advisory committee tasked to better protect borrowers.

An upfront administrative fee of not more than 10 per cent of the loan principal and a four per cent cap on nominal interest rate per month regardless of a borrower's income were among some of the key recommendations by the advisory committee. Photo: Mugilan Rajasegeran

An upfront administrative fee of not more than 10 per cent of the loan principal and a four per cent cap on nominal interest rate per month regardless of a borrower's income were among some of the key recommendations by the advisory committee. Photo: Mugilan Rajasegeran

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SINGAPORE — An upfront administrative fee of not more than 10 per cent of the loan principal and a 4 per cent cap on nominal interest rate per month regardless of a borrower’s income were among some of the key recommendations announced today (May 29) by an advisory committee tasked to better protect borrowers.

Late interest fees will also be capped at 4 per cent a month while late fees will not be more than S$60 per month.

Total borrowing costs, including interest fees and other fees, will be capped at 100 per cent of the original sum borrowed. Additional charges for, for example, early loan redemption or unsuccessful GIRO deductions will not be allowed.

The Government said it welcomes the majority of the recommendations. Twelve of the 15 recommendations were accepted by the Government. Two recommendations — lifting the moratorium on granting new licenses and regulating debt collection behaviour — will be reviewed. It did not take on board the committee’s recommendation to allow controlled advertising by moneylenders in newspapers.

Speaking to reporters, Minister for Law and Foreign Affairs K Shanmugam said the recommendations struck a right balance between protecting borrowers and ensuring the moneylending industry remains viable. The recommendations will be implemented on a progressive basis, with some such as the caps on interest rates and late fees to be rolled out first, he said.

The committee was formed in June in last year to review regulations of the licensed moneylending industry, three months after it was first announced in Parliament. There had been concerns raised by Members of Parliament about the industry, particularly on excessive borrowing costs.

Current restrictions cap interest rates at 20 per cent for borrowers earning less than S$30,000 annually. There are no caps on interest fees and late fees for those whose annual earnings are more than S$30,000.

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