Cap on late payment interest or charges for specific contracts
Many contracts contain clauses which impose interest or other charges for late payment. Sometimes, the interest rates or charges stipulated can be high. The COVID-19 pandemic has had a drastic effect across all segments of the economy, and many Singaporeans and local businesses have missed some payments as a result.
To help Singaporeans and businesses who are struggling because of COVID-19 with temporary cash flow relief, the COVID-19 (Temporary Measures) Act (the “Act”) provided businesses and individuals who are unable to meet certain payment obligations because of COVID-19 a temporary moratorium from enforcement actions during the prescribed period. However, during this time, payments and interest thereon continue to accrue.
The Act (as amended by the COVID-19 (Temporary Measures) (Amendment) Act) thus limits the amount of late payment interest and charges that can be charged for arrears that arise due to COVID-19 under the following prescribed contracts:
a. Hire-purchase agreements and conditional sales agreements (that are not with a bank or finance company) (click here for further details)
b. Rental agreements for commercial equipment (click here for further details)
c. Sale and purchase agreements with developers (click here for further details)
d. Construction contracts or supply contracts (click here for further details)
e. Event and tourism-related contracts (click here for further details)
This is intended to help businesses affected by COVID-19 to manage their debt load, and facilitate a quicker eventual recovery.
The cap on late payment interest or charges does not apply to SME secured loans and hire purchase agreements / conditional sales agreements granted by banks and finance companies. Please see the FAQ below for further details.
How the relief works
Once the Notification for Relief is served, all late payment interest and charges that are chargeable on arrears that accrued between 1 February 2020 to the end of the relevant prescribed period*, will be capped at an amount equal to 5% per annum of simple interest on the arrears.
*Please refer to this link for the relevant prescribed period.
Why does the prescribed cap on late payment interest and charges not apply to contracts with a bank or finance company?
Banks and finance companies, working with MAS, have already adopted a series of voluntary relief measures for individuals and businesses.
Individuals and businesses can apply to their respective bank or finance company to defer payments for their hire-purchase contracts and SME secured loans.
Borrowers can also opt to extend the loan tenure by up to the corresponding deferment period to ease monthly instalments when they resume regular repayments. Borrowers will be charged the same loan interest rate (and not a punitive late payment interest rate) for the deferred payments.
Generally, banks and finance companies have been able to work out suitable relief plans with borrowers for their existing loans.
You may refer to MAS’ website (Measures for Individuals, Measures for Businesses) and ABS’ website (Special Financial Relief Programme) for more information on the banks’ relief measures and contact details.
Click here for illustrations of how the cap on late payment interest and charges applies.