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New rules to curb credit card debt, unsecured loans
Changes by MAS meant to stop people from over-borrowing
Published on Sep 12, 2013
By Mok Fei Fei
PILING up credit card debt and other unsecured loans will be far harder under sweeping new rules aimed at improving lending practices and preventing people from falling deeper into the red.
The changes, which were welcomed by banks, were unveiled by the Monetary Authority of Singapore (MAS) yesterday.
They follow earlier moves to limit borrowing on homes and cars.
Some of the key moves target people who are already struggling with unsecured debt such as credit cards and personal credit lines, which are not backed by collateral like property or cars.
Individuals whose unsecured debts are more than 60 days past due - with not even the minimum repayments made - will not get further credit.
They will also be barred from new loans if their total unsecured debt exceeds 12 months of their income for 90 days.
So if a person earning $4,000 a month has had credit card and similar debt worth over $48,000 for more than 90 days, he will not be able to charge more to his existing unsecured credit facilities or borrow from any bank.
The MAS said it chose 12 months as the limit to balance between financial prudence and the needs of some borrowers who "rely on significant amounts of unsecured borrowings".
But it advised borrowers to stay "well within the 12-month limit, as such borrowings typically attract high interest costs".
People with financial commitments such as car loans can find themselves in financial strife with even a few months' income worth of unsecured debt.
The MAS said it may lower the limit if necessary. These new rules kick in on June 1, 2015.
Other major shifts include requiring banks to review a borrower's total debt and credit limits before granting a new credit card or an unsecured credit facility. This takes effect in June next year.
Banks can now access only credit bureau reports that do not show a borrower's outstanding debt, noted Mr Kuo How Nam, president of non-profit group Credit Counselling Singapore.
Before raising a borrower's credit limit, banks must also do a new credit check and obtain the borrower's written consent.
Another key change is that banks will have to inform borrowers who roll over their debts what the potential costs and total debt could be. "This will help borrowers make more informed credit decisions," the MAS said.
Not all the new rules are stricter. For individuals aged over 55, getting a credit card will be easier if they have enough personal assets or a guarantor.
The Association of Banks in Singapore said it supports the measures, which come after a public consultation in December.
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