Parliamentary Replies
Published Date: 10 November 2003

Reply to PQ on checks on credit card companies

Question No 429
Notice Paper No. 178 of 2003
For Oral Answer

Date: For Parliament Sitting on 10 November 2003

Name and Constituency of Member of Parliament
Q-429 Ms Irene Ng Phek Hoong, MP for Tampines GRC

To ask the Deputy Prime Minister and Minister for Finance in view of the rising number of bankruptcies, whether (a) there are adequate checks on credit card companies, especially those which have expanded their customer base to families with lower incomes; and (b) there is a need for the consumer credit laws to be reviewed to make sure that borrowers are given clear information on the penalties for late payments on loans and on how interest is charged.

Over the past two years, the economic downturn has led to an increase in the number of bankruptcies and a rise in unemployment.   In this more difficult economic environment, the number of people defaulting on loans and credit card debt will naturally increase, especially when those who are highly leveraged lose their jobs and, consequently, are unable to service their loans. MAS is keeping a close watch on the growing default rates and the rise in consumer credit card debt.

(a)  Ms Ng has asked whether there are adequate checks on credit card companies here and suggests that credit card issuers may be extending credit too easily to those in the lower-income group. Banks and other credit card issuers are supervised by the Monetary Authority of Singapore (MAS), and are expected to behave prudently when extending credit. Currently, MAS permits credit card companies to offer credit cards and unsecured credit facilities only to individuals with a minimum annual income of $30,000. This is to prevent lower-income individuals from borrowing from financial institutions for consumption, as such individuals are more likely to find themselves unable to service their debts. This policy has served us well thus far, and MAS has no intention of easing our restrictions on credit cards.

(b)  Ms Ng has also asked whether consumer credit laws need to be reviewed to ensure consumers have clear information on penalties for late payments on loans and on how interest is charged. MAS' guidelines currently require credit card companies to disclose late payment and finance charges prominently on all monthly statements. The Association of Banks in Singapore (ABS) has also worked on a number of initiatives to improve standards of disclosure. All banks now provide an information leaflet together with the credit card application, highlighting in plain language significant terms and conditions, as well as fees and charges relating to the use of a credit card. ABS is also working to improve its existing Code of Consumer Banking Practice to enhance industry standards in the area of credit cards, and other forms of consumer credit such as housing loans and car loans.

Introducing new regulations for credit is unlikely to solve the problem of rising bankruptcies in Singapore. The long-term solution to a rising incidence of loan defaults and bankruptcies is for Singaporeans to learn how to better manage their finances, including ensuring that they understand all the salient terms and conditions of obtaining credit. To this end, MAS recently launched a national financial education programme, MoneySENSE, to help Singaporeans acquire the skills and knowledge to better manage their finances.  Under the programme, government agencies, industry associations and consumer bodies will work together closely to ensure that consumers get adequate information on areas such as budgeting, saving and using credit responsibly.  MAS will also work with ABS and Consumer Association of Singapore (CASE) to educate consumers on the consequences of late payment on credit cards, and how penalties and late interest charges are computed.  Ultimately, consumers must be responsible for their own spending, and not live beyond their means.  With the MoneySENSE programme, we hope that consumers will avoid imprudent use of credit, manage their finances proactively and become self-reliant.