11 September 2013
The Monetary Authority of Singapore (MAS) has finalised changes to credit card and unsecured credit rules aimed at improving lending practices by financial institutions and enabling individuals to make better borrowing decisions.
2. The policy changes follow a public consultation, in which respondents generally supported the proposals. MAS has taken the public feedback into consideration and adjusted the proposals where appropriate. Details are set out in the responses to feedback received on the consultation paper.
3. The key policy changes are as follows:
(a) Financial institutions will be required to review a borrower’s total debt and credit limits1 before granting a new credit card or unsecured credit facility, or increasing the credit limit on such facilities. This is to enable a more realistic assessment of an individual’s borrowing capacity.
(b) Financial institutions will be required to disclose to individuals who roll over their credit card debts and revolving credit facilities the potential cost of doing so and how the debt will accumulate. This will help borrowers make more informed credit decisions, taking into account the total cost of borrowing.
(c) Financial institutions will be required to obtain a borrower’s express consent for the amount of each credit limit increase. This will ensure that credit limit increases are not extended to borrowers unless they agree to such increases. This includes outstanding debt on and credit limits of all credit cards, charge cards, unsecured loans as well as secured loans across all financial institutions.
(d) Financial institutions will not be allowed to grant further unsecured credit to individuals whose unsecured debts with those financial institutions are more than 60 days past due, until all past due amounts are paid. Other financial institutions will also not be allowed to grant new cards and unsecured credit facilities or increase credit limits on existing facilities. This will help individuals who already have difficulties repaying their existing debt avoid getting into further debt problems.
(e) Financial institutions will not be allowed to grant further unsecuredcredit to individuals whose aggregate interest-bearing outstanding unsecured borrowings across all financial institutions exceed 12 months of their income for 90 days or more. This includes not being able to charge further amounts to all existing unsecured cards and unsecured credit facilities. Financial institutions will also not be allowed to grant new unsecured cards and unsecured credit facilities. This will help individuals who have already accumulated high levels of debt through credit cards and unsecured credit avoid accumulating further debt,
4. The aggregate limit on what an individual can borrow through all his credit cards and unsecured lines aims to instil financial prudence. The limit has been set at 12 months of income, considering that there are some borrowers who rely on significant amounts of unsecured borrowings. Most borrowers of unsecured credit should aim to stay well within the 12-month limit, as such borrowings typically attract high interest costs. It is not financially prudent for an individual to
accumulate significant credit card and unsecured credit borrowings, especially for prolonged periods of time. In particular, for individuals with existing financial commitments such as mortgages and motor vehicle loans, incurring even a few
months’ income worth of unsecured debt will be a big financial strain. MAS will closely monitor the situation and lower the limit if necessary.
5. The proposals will be implemented in stages with some taking effect as soon as the revised rules are issued and others expected to come into effect over time to provide borrowers and financial institutions time to adjust.2 Borrowers will have a transition period of 18 months to re-evaluate and pay down their existing borrowings to within the aggregate limit on credit card and unsecured borrowings. MAS is studying if more time should be extended to borrowers whose current aggregate unsecured debt significantly exceeds 12 months of their income. MAS expects financial institutions to work actively with affected borrowers to facilitate debt refinancing and restructuring in order to reduce their debt burdens.
6 MAS is seeking public feedback on the draft amendments to the Banking (Credit Card and Charge Card) Regulations and to the relevant MAS Notices arising from these rule changes. The consultation paper can be found at MAS’ website. MAS invites interested parties to give their views and comments on the consultation paper by 10 October 2013