Oct 22, 2013

    Concern that credit rule may push some to moneylenders

    A NEW rule to deny further credit to people who have chalked up an aggregate debt exceeding 12 months' income for 90 days or more has raised the concern that it might push people to moneylenders, legal or otherwise.

    Ms Foo Mee Har, a Member of Parliament for West Coast GRC, said yesterday that as moneylenders and pawnbrokers tend to have "higher interest rates and tougher terms", individuals can become more overstretched financially if they choose to turn to such avenues.

    She also pointed out that there is "no centralised cross-agency database that gives the full picture of the individual borrower debt from the various sources", which might prove to be a "regulatory loophole".

    Responding to Ms Foo's questions, Deputy Prime Minister Tharman Shanmugaratnam said that the Monetary Authority of Singapore (MAS) has to find an "important balance" in the credit rules and that, from now till the rule's implementation in June 2015, individuals can take the time to "work their debts down".

    "We set the limit at 12 months' income for a start, so as to allow borrowers who are already over the limit to adjust," said Mr Tharman, who is also Finance Minister.

    "MAS expects financial institutions to work actively with their affected customers to take steps to bring down their (customers') unsecured debt levels."

    Last month, MAS announced tighter restrictions on credit cards and other unsecured-debt facilities, along with other measures such as requiring banks to conduct more regular credit checks and for them to disclose to borrowers how one's debt could spiral if left unpaid.

    Ms Foo also asked how MAS can prevent more people from accumulating debts beyond the 12-month income limit, before the rule kicks in.

    Mr Tharman replied that MAS will be starting off with some "softer rules and, eventually, they will become quite hard rules in June 2015".

    From December this year, banks will have to do a check with the credit bureau, as well as conduct income checks on borrowers, before increasing borrowers' credit limits.

    Mr Tharman said that the rules kick in early, "although we are not specifying that the 12-month limit is a hard limit now".