Reply to PQ on Unsecured Credit Facilities
Question No. 938
Notice Paper No. 44 of 2009
Question No. 969
Notice Paper No. 53 of 2009
For Oral Answer
Date: For Parliament Sitting On 23 March 2009
Name and Constituency of Member of Parliament
Question No 938: Cynthia Phua, MP for Aljunied GRC
Question No 969: Penny Low, MP for Pasir Ris-Punggol GRC
Cynthia Phua: To ask the Senior Minister (a) whether he will give an update on the number of credit card defaults in the past 6 months; and (b) whether MAS will ask credit card companies to refrain from using various gimmicks, such as giving out crossed cheques when they are in fact debit notes, to lure cardholders to spend.
Penny Low: To ask the Senior Minister in view of the lowering of the minimum annual income threshold for unsecured credit facilities from $30,000 to $20,000
(a) what measures are in place to help ensure financial prudence on the part of both the creditor and debtor; and (b) whether there will be a danger of a sub-prime loans situation that affects heartlanders, especially given the downturn situation.
Mr Lim Hng Kiang, Minister for Trade and Industry and Deputy Chairman:
1. Both Mdm Phua and Miss Low asked about the measures in place to regulate the credit card and unsecured credit lending practices of our financial institutions.
2. The unsecured credit rules are now applied in a more consistent manner to both moneylenders and financial institutions. This is not a loosening of the rules; for the moneylenders, the new rules reflect a tightening. Overall, the new rules which set the annual income threshold for access to unsecured credit at $20,000 and the credit limit for this group of borrowers at 2 months their income allow these Singaporeans modest levels of unsecured credit which they may need from time to time. They may also reduce the risk of such individuals turning to unlicensed moneylenders. Consistent with this objective, MAS has not lowered the minimum annual income threshold for credit cards, which remains at $30,000, as these are typically used to finance consumption expenses.
3. MAS has introduced several measures to mitigate the risks of over-borrowing by individuals from all income groups. These include more explicit requirements on disclosure to customers of the charges, rates of computation, and consequences of late payment with regard to these cards or facilities. Banks and card issuers are also required to conduct comprehensive checks with the credit bureau before granting each new credit or charge card, or unsecured credit facility. The credit report sets out the number of credit lines the applicant already has and his repayment record. Financial institutions are expected to take these into account before deciding whether to extend further credit.
4. Under the new rules, financial institutions are not allowed to make offers of unsecured credit facilities to customers, unless the customer has requested for these in writing. This follows similar restrictions on unsolicited offers of credit cards that are already in place. This means that, with effect from 1 March 2009, financial institutions are prohibited from sending any articles - such as cheques - that an individual can use to draw down on an unsecured credit facility, unless he has requested for the facility in writing, or unless the unsecured credit facility has previously been granted to that individual.
5. To date, the level of credit card debt level has also not deviated much from the historical average. The charge-off rate, which measures credit card debt written off by banks and card issuers as a percentage of the rollover balance, has kept within the range of 3 – 4% over 2007 and 2008. There was a modest increase from 3.7% in Q3 of 2008 to 4% in Q4 2008. However, this compares favourably with over above 8% during the SARS period. Credit card balances rolled over for a month or longer, which may indicate that some cardholders need longer than one month after due date to pay their credit card bills, averaged 15% in 2008. There was no noticeable increase in Q4 2008 from this full-year average. The 15% average for 2008 is comparable with the 5-year average of 17% between 2004 and 2008 and below the 20-25% range recorded during the peak period between 1999 and 2003. Despite a slight increase in this ratio in January 2009, it is still too early to draw firm conclusions. MAS will continue to monitor these indicators.
6. Lenders and borrowers both have a role to play in ensuring the use of unsecured credit and credit cards is responsible, sustainable and within the means of the borrower. The national financial education programme, MoneySENSE, continues to work with industry associations such as the Association of Banks in Singapore (ABS) to educate consumers on the importance of saving and prudent borrowing.