Forum: Cap credit card interest rates to protect the vulnerable from crippling debts
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The current interest rates charged on overdue credit card amounts in Singapore are exorbitant, with rates exceeding 20 per cent per annum, plus daily rest. This practice disproportionately affects vulnerable individuals who are least able to pay such high interest rates.
The Monetary Authority of Singapore (MAS) should intervene to protect consumers by capping interest charges on overdue credit card amounts.
The current interest rate regime affects individuals who are already struggling financially. Those who are unable to pay their credit card dues on time are often low-income earners, retirees, or individuals facing financial difficulties. The high interest rates only exacerbate their financial woes, creating a debt trap that is difficult to escape from.
Interest rates exceeding 20 per cent per annum, plus daily rest, are unreasonably high. These rates are significantly higher than the interest rates offered on savings accounts or other investment products, making it impossible for individuals to earn enough interest to offset the charges.
Some countries such as the US are trying to cap interest rates on credit card debt. Singapore should follow suit to protect its citizens from such lending practices.
Capping interest charges on overdue credit card amounts is necessary to promote financial inclusion.
MAS can introduce a cap on interest rates charged on overdue credit card amounts, such as 12 per cent per annum. Abolishing daily rest on interest charges would help too, as this practice can lead to rapid accumulation of debt.
MAS can also collaborate more with financial institutions and consumer advocacy groups to promote financial literacy and education, helping consumers to make informed decisions about credit card usage.
Joe Chua Cheok Kwang
