MAS and MinLaw Issue Responses to Feedback on Proposed Changes to Unsecured Credit Rules
Singapore, 1 February 2007...The Monetary Authority of Singapore (MAS) and the Ministry of Law (MinLaw) have jointly issued their responses to feedback received from a public consultation on the proposed changes to the unsecured credit rules and the proposed application of these rules to moneylenders. The joint public consultation was conducted from 7 August 2006 to 7 Sept 2006.
2 The proposed changes aim to update the unsecured credit rules imposed on financial institutions to address developments within the industry and to extend the unsecured credit rules to moneylenders in line with the Government's social policy of discouraging individuals from spending beyond their means. Notwithstanding this, the new rules do not seek to deny individuals who may have occasional genuine borrowing needs from all access to unsecured credit. The changes attempt to maintain a balance between allowing responsible borrowing and the Government's social policy of discouraging individuals from spending beyond their means.
3 The wide range of feedback that MAS and MinLaw received on the proposed changes reflects the challenges of maintaining this balance. Some respondents agreed with the proposals. Some suggested further liberalisation, while others raised concerns such as the possible aggressive selling by banks and over-borrowing by consumers leading to increased delinquency and bankruptcy.
4 After careful consideration of views from all respondents, MAS and MinLaw have decided on the following policy changes, which are carefully calibrated to balance the twin objectives:
A measured step of lowering the minimum annual income threshold for unsecured credit facilities from $30,000 to $20,000. A more conservative maximum credit limit of twice the borrower's monthly income will be set for individuals in this $20,000 to $30,000 income group, with no access to credit cards.
To continue to set an aggregate maximum credit limit (inclusive of any credit card limit with respect to financial institutions) for unsecured credit at four times an individual's monthly income for individuals earning at least $30,000.
Create appropriate modifications to the moneylenders regime. For instance, for unsecured loans of $3,000 and below, no minimum income requirement would be imposed but such loans would be subject to an interest rate cap.
5 In order to mitigate the risks of over-borrowing by individuals from all income groups, MAS and MinLaw require financial institutions and moneylenders to conduct adequate and relevant checks on borrowers before lending. Industry players are also encouraged to apply robust risk assessment criteria, closely monitor performance of loans, and further refine their practices on responsible lending. MoneySENSE, a national financial education programme, will continue to work with industry associations, such as the Association of Banks in Singapore, to implement initiatives to educate consumers on the importance of budgeting and prudent credit management.
6 MAS and MinLaw will make the relevant legislative changes to the Unsecured Credit Regulations and the Moneylenders Rules respectively by mid-2007. The responses of MAS and MinLaw to the feedback received can be viewed online at the Reach Portal at: http://app.reach.gov.sg/olcp/asp/ocp/ocp01d1.asp?id=3763.