SINGAPORE - An advisory committee has proposed that moneylenders should only be allowed to charge borrowers interest rates of up to four per cent a month, on a reducing balance basis, and an upfront fee of 10 per cent of the loan principal sum at most.
In addition, moneylenders may only charge a late interest of up to four per cent on borrowers who make repayments late, and any late fee imposed should also not exceed $60.
These caps mean that total borrowing costs borne by borrowers will be capped at 100 per cent of the loan principal to prevent debts from spiralling out of control.
These were among the recommendations made by the Advisory Committee on Moneylending, which was formed last year by the Ministry of Law to review Singapore's moneylending regulatory regime.
In a statement on Friday, the Ministry of Law said that the Committee's recommendations had focused on interest rates and loan caps and the moneylenders' business practices.
Under the existing regime, there is no cap on interest and late interest rates for borrowers earning more than $30,000 annually, or on total borrowing costs.
As such, the Committee also recommended that borrowers who earn more than $20,000 a year be subject to a cap of six times their monthly salary, while those earning less than $20,000 a year will be subject to the existing $3,000 cap.
The committee also made recommendations related to moneylending practices. In particular, it recommended that moneylenders adhere to a set of standardised loan terms and practices, including guidelines on debt collection.
In total, the Committee advanced 15 recommendations, of which 12 were accepted by the Law Ministry. Two more are being reviewed.
However, the government did not accept a recommendation that moneylenders be allowed to advertise in newspapers using strict templates, taking the view that advertising could lead to increased borrowing.