New rules to curb credit card debt, unsecured loans

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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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Published September 12, 2013

MAS tightens screws on unsecured credit

Clampdown on unsecured lending follows concern over rising household debt levels

By andrea soh [email protected]


[SINGAPORE] Unsecured credit customers who have two months or more of unsecured credit debt past due will no longer be able to get further credit from banks, under new rules unveiled by the Monetary Authority of Singapore (MAS) yesterday.

All credit card holders who wish to increase their credit limits will also have their credit history across all banks examined by the bank.

The measures were welcomed by banks and economists alike, with the latter highlighting concerns over rising household debt levels here.

The rules, which follow a public consultation carried out by the MAS in December last year, will be introduced in three phases, with the first taking effect from Dec 1 and the last from June 2015.

In addition, banks will not be allowed to give further credit to those who owe a total amount of more than 12 months of their income for 90 days or more from unsecured borrowings.

In December, the MAS had suggested a debt limit of two months of the person's income, for six consecutive months or more.

"The limit has been set at 12 months of income, considering that there are some borrowers who rely on significant amounts of unsecured borrowings," MAS said yesterday, while advising borrowers to stay within the 12-month limit.

MAS also slightly relaxed another rule. While it had previously proposed disallowing unsolicited offers by banks to increase credit limits, the finalised rules only require banks to get borrowers' consent in writing for the amount of credit limit increase.

Other rules, however, remained unchanged. Banks will have to review a person's total debt and credit limits before granting new credit cards or unsecured credit facility, or increasing the credit limit on these.

Banks will also have to disclose to customers who roll over their debts how much that could snowball into.

Banks here were supportive of the new measures, which they deemed as encouraging responsible use of credit cards.

"We are already complying with most of the policy changes in the first phase which will be implemented from Dec 1, 2013," said a DBS spokesperson, adding that the bank is confident of adhering to the stipulated timeline.

Said Standard Chartered Bank's head of unsecured lending in Singapore, Sandhya Devanathan: "We welcome any policies that help to further safeguard consumers' interest... The proposed changes will encourage consumers to be more aware of their debt level and have banks enhance our processes and tighten lending norms - all with the good intention of ensuring that consumers are not over-leveraged."

Desmond Tan, OCBC's head of lifestyle financing, urged customers to build and maintain a good credit history by paying bills on time, and to inform the bank early if they have problems paying even the minimum sum.

"This signifies your commitment to pay," he said.

The new measures are unlikely to have a huge impact on the banks, reckoned CIMB head of research Kenneth Ng.

"Credit cards only account for about 2 per cent of total system debt, so this is not as meaningful a drag on loan volumes as June's total debt servicing ratio framework," he said.

"In fact, stricter rules on unsecured credit could ensure that the Singapore banks are perceived to be safer, and help the Singapore banks hold up better if the current slowdown across Asean becomes more accentuated."

The new rules come on the back of other tighter financing rules imposed by the government on property and car loans this year, and were applauded by economists concerned with personal debt levels in Singapore.

"It's about time that this portion of unsecured lending is taken care of," said UOB economist Francis Tan.

While the value of debt written off per credit card has remained steady in the past few years, the measures reflect prudence and forward thinking on the part of the government, he said.

"This is just another set of macro-prudential measures to mitigate against unnecessary risk on household balance sheets," said DBS economist Irvin Seah, noting that household debt levels have been a worry because of the availability of easy credit in an ultra-low interest rate environment.

"This is also to safeguard against a flag-up in interest rates in case consumers over-expend themselves," he added.

A Citi report in July showed that household debt here had climbed from 67 per cent of GDP at end-2010 to 74.8 per cent in the third quarter of last year.

Higher interest rates would therefore affect consumption levels in the early stages of the (expected) rate hiking cycle, it said.

There were 1.4 million credit cardholders as of July 2013, with a cardholder having on average cards from 3.1 banks, data from Credit Bureau Singapore revealed.

MAS is seeking public feedback on the draft amendments to the Banking (Credit Card and Charge Card) Regulations from these rule changes. The consultation paper can be found at the MAS website and interested parties should give their views by Oct 10.