SINGAPORE: 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.
The policy changes follow a public consultation in which respondents generally supported the proposals, said MAS in a statement on Wednesday.
According to the key policy changes, financial institutions will be required to review a borrower's total debt and credit limit before granting a new credit card or unsecured credit facility, or increasing the credit limit on such facilities.
This would enable a more realistic assessment of an individual's borrowing capacity.
Secondly, financial institutions are required to disclose to borrowers the total amount and time needed to fully pay off their debts if they pay only the minimum payment each month.
Financial institutions are also to disclose to borrowers the amount of debt that would accumulate by the end of six months if they fail to pay in the next six months.
MAS said this will help borrowers make more informed credit decisions while taking into account the total cost of borrowing.
Thirdly, financial institutions will be required to obtain a borrower's express consent for the amount of each credit limit increase.
This is to ensure that credit limit increases are not extended to borrowers unless they agree to such an increase.
In addition, financial institutions will not be allowed to grant further unsecured credit to individuals who have outstanding unsecured debt of more than 60 days with these institutions.
Similarly, other financial institutions will not be allowed to grant new cards and unsecured credit facilities or increase credit limits on existing facilities.
MAS said this will help individuals who already have difficulties repaying their existing debt avoid getting into further debt problems.
Financial institutions will also not be allowed to grant further unsecured credit 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 as well.
MAS said this would help individuals who have already accumulated high levels of debt through credit cards and unsecured credit avoid accumulating further risk.
MAS added that the total limit on what an individual can borrow through all his credit cards and unsecured lines is aimed at instilling financial prudence.
The limit has been set at 12 months of income.
MAS said most borrowers of unsecured credit should aim to stay well within the 12-month limit, as such borrowings typically attract high interest costs.
MAS will also closely monitor the situation and lower the limit if necessary.
The proposals will be implemented in stages with some taking effect as soon as the revised rules are issued.
Others are expected to come into effect over time to give borrowers and financial institutions some time to adjust.
MAS added that borrowers will have a transition period of 18 months to re-evaluate and pay down their existing borrowings to stay within the aggregate limit on credit card and unsecured borrowings.
MAS expects financial institutions to work actively with affected borrowers to facilitate debt refinancing and restructuring in order to reduce their debt burden.
The Singapore central bank is studying if more time should be extended to borrowers whose current aggregate unsecured debt exceeds 12 months of their income.
The 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.
When contacted by Channel NewsAsia, UOB said "it remains prudent and disciplined in its credit evaluation processes". It sees the new measures as a proactive move to mitigate the risk of consumer over-leverage.
Meanwhile OCBC Bank said it "welcomes the policy change to further strengthen the criteria to prevent over-borrowing".
The banks did not comment on whether the new measures would lead to higher manpower or IT costs as more thorough background checks are required.
Meanwhile data from Singapore's Credit Bureau showed that from January to July 2013, the percentage of credit cardholders with credit card delinquencies was 4.9% per month, compared with 4.7% in the same period in 2012.
Meanwhile the percentage of credit cardholders who defaulted on their credit card from January to July in 2013 was 0.13% per month on average.
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