Tougher rules for credit cards and unsecured loans

Tighter rules will be in place for credit cards and personal loans as the government moves to lessen the likelihood of people becoming heavily indebted. -- ST FILE PHOTO: KUA CHEE SIONG
Tighter rules will be in place for credit cards and personal loans as the government moves to lessen the likelihood of people becoming heavily indebted. -- ST FILE PHOTO: KUA CHEE SIONG

Tighter rules will be in place for credit cards and personal loans as the government moves to lessen the likelihood of people becoming heavily indebted.

The Monetary Authority of Singapore (MAS) unveiled on Wednesday a slew of measures to restrict people from overborrowing on unsecured loans, such as credit cards.

From June 2015, borrowers whose unsecured debts are more than 60 days past due will no longer be allowed to obtain further unsecured credit until all their overdue debts are paid. They will also not be allowed to obtain new credit cards or unsecured loans, or higher credit limits, from other financial institutions.

But if the borrower makes the minimum payment each month, The Straits Times understands they can still get access to new credit.

Those whose unsecured debts have amounted to more than 12 months of their income for 90 days or more will also not be able to obtain any more unsecured credit.

This means the borrower will not be able to charge further amounts to all existing unsecured credit facilities.

The MAS will also introduce other measures in phases starting from December this year.

It will require financial institutions to review a borrower's total debt and credit limits first, before issuing a new credit card or unsecured credit facility, and before increasing the credit limit on such facilities.

Financial institutions must also disclose how much they will charge for borrowers who roll over their credit card debts and how the debt will accumulate.

Further, financial institutions can no longer increase a borrower's credit limit without his consent.

The MAS said the new rules are to ensure prudence, avoid accumulation of high debts and help people to make better borrowing decisions.

The central bank said the aggregate limit on what an individual can borrow has been set at 12 months as some borrowers rely on significant amounts of unsecured loans.

But it has advised borrowers of unsecured credit to stay "well within the 12-month limit, as such borrowings typically attract high interest costs."

This is especially for people with existing financial commitments like mortgages and car loans.

MAS will closely monitor the situation and lower the limit if necessary.

The changes come after a public consultation it held in December last year.