Sunday, 17 December 2017

New Credit Limit Management Measure to help individuals manage unsecured debts from 1 January 2018

Monetary Authority of Singapore acts to curb excessive unsecured debt
By Lorna Tan, Invest Editor/Senior Correspondent, The Straits Times, 16 Dec 2017

More help is on the way for borrowers who are in danger of being overwhelmed by unsecured debt like credit card borrowings.

A new Credit Limit Management Measure coming into effect on Jan 1 will potentially affect people who have unsecured debts that are six times their monthly income.

Banks will not be allowed to grant any increase in credit limits or any new unsecured credit facilities to such a person if they cause his total credit limit to exceed 12 times his monthly income.

Ms Loo Siew Yee, assistant managing director (policy, risk and surveillance) at the Monetary Authority of Singapore, said yesterday that the measure aims to help borrowers avoid getting over their heads in debt.

In June 2015, an industrywide borrowing limit was introduced that capped unsecured loans to 24 times one's monthly income. It was cut to 18 times in June this year, and will be lowered to 12 times from June 2019.

There are an estimated 60,000 borrowers with unsecured debts between six and 12 times their monthly income. That is only about 4 per cent of the total 1.5 million unsecured credit users here.

These borrowers will be affected only if they apply for new credit facilities, or a credit limit increase, that push their total credit limit above 12 times their monthly income.

They can still draw on their existing unutilised unsecured credit facilities.

Steps taken to manage borrowing have produced results. The number of highly indebted borrowers has come down by about 21,000 since June 2015, from 5 per cent to below 4 per cent of the total number of unsecured borrowers.

But since January, an average of 4,000 borrowers every month have hit unsecured debt levels 12 times their monthly income or more.









Banks welcome new measures to protect borrowers
By Lorna Tan, Invest Editor/Senior Correspondent, The Straits Times, 16 Dec 2017

Financial associations and banks have welcomed new measures to help borrowers avoid racking up excessive unsecured debt.

The new ruling, which kicks in on Jan 1, is aimed at borrowers with unsecured debt like personal loans or red ink on a credit card that exceeds six times their monthly income.

It effectively draws a line in the sand by preventing any increase in credit limits or any new unsecured credit facilities that push debt above 12 times their monthly income.

Mrs Ong-Ang Ai Boon, director of the Association of Banks in Singapore, said: "This new policy should help customers not to further ramp up their indebtedness."

Ms Jacquelyn Tan, United Overseas Bank's (UOB) head of personal financial services Singapore, said it will encourage financial prudence and help consumers spend only within their means.

This is how the new measure works. Take, for instance, a person who earns $4,000 a month with unsecured debt of $26,000, or 61/2 times his monthly income. Assume also that he already has an unutilised credit of $14,000 or 31/2 times his monthly income, which adds up to a total credit limit of 10 times his monthly income. That means he can apply only for additional unsecured credit up to two times his monthly income, or $8,000.

On the other hand, consider a person earning $5,000 a month with debts of $40,000, or eight times the monthly income. Assume he has an unutilised credit of $25,000, or five times his monthly income. That makes a total credit limit of 13 times the monthly income, so he would be unable to get additional unsecured credit from a bank.

Mr Kuo How Nam, chairman of Credit Counselling Singapore, said the new rule is a pre-emptive measure taken by the Monetary Authority of Singapore. The cap on utilisation is already being implemented progressively, he added.

Banks like DBS Bank and UOB say they are supportive of the initiative as it helps consumers to manage their finances better.

Mr Anthony Seow, DBS' head of cards and unsecured loans, said it does not foresee much impact as only a small percentage of customers will be affected by the change.

The credit limit does not apply to secured loans such as property and car loans, and unsecured loans for business, medical spending and education.





Pre-empting the pitfalls of debt
An upcoming credit limit ruling could provide help earlier for those in debt
By Lorna Tan, Invest Editor/Senior Correspondent, The Straits Times, 24 Dec 2017

The latest initiative by the authorities to help borrowers from falling into deep, unsecured debt is a reminder for all to exercise financial prudence. It is also timely, what with the year-end festivities and Chinese New Year round the corner.

The Sunday Times highlights what you need to know about the new credit limit measure.

WHAT IS THE CREDIT LIMIT MANAGEMENT MEASURE?

Come Jan 1, the so-called Credit Limit Management Measure kicks in. It is aimed at borrowers with unsecured debt, such as personal loans or credit card debt, that exceeds six times their monthly income.

Banks will not be allowed to grant any increase in credit limits or any new unsecured credit facilities to such a person if they cause his total credit limit to exceed 12 times his monthly income. Affected borrowers can continue to use their existing unsecured credit facilities.

To check your outstanding balances and credit limits with all the banks, you can buy a credit bureau report.

The Monetary Authority of Singapore and financial practitioners such as Mr Kuo How Nam, chairman of Credit Counselling Singapore (CCS), say this is a pre-emptive measure to aid borrowers and prevent more problems before they are affected by an industry-wide borrowing limit that is being phased in progressively.

In June 2015, an industry-wide limit was introduced that capped unsecured loans to 24 times one's monthly income. It was cut to 18 times in June this year and will be lowered to 12 times from June 2019.


WHAT ARE UNSECURED DEBTS?

Unsecured debts are those with no collateral, such as credit card debts, personal loans or an overdraft. This limit applies to interest-bearing balances on personal unsecured credit facilities. It excludes secured loans such as property and car loans, as well as unsecured loans for business, medical and education spending.

Borrowers with an annual income of at least $120,000 or those with net personal assets exceeding $2 million are exempted from the industry-wide borrowing limit.

HOW MANY BORROWERS ARE THERE WITH UNSECURED DEBTS?

Over the past few years, steps taken to manage borrowing have produced results. Currently, there are an estimated 60,000 borrowers with unsecured debts between six and 12 times their monthly incomes - about 4 per cent of the total 1.5 million unsecured credit users here.

In October this year, there were 26,000 borrowers with interest-bearing unsecured debts of more than 18 times their monthly incomes. Collectively, they owed $3.2 billion, which is less than 0.15 per cent of total banking assets. This is down from the 51,000 borrowers who had a similar debt threshold, owing an aggregate of $5.6 billion, in February 2015.

WHAT CAN THESE BORROWERS DO?

Mr Kuo advises borrowers to seek help earlier when it is easier to restructure their debts, instead of avoiding the problem until it is too late.

"People in debt are usually under pressure and constantly worried about their ability to meet the next monthly repayment. It will affect their work performance and spoil family relationships," he says.

Several assistance schemes and repayment plans, such as the Debt Consolidation Plan (DCP) launched earlier this year by the Association of Banks in Singapore, are available to help borrowers.

Under a DCP, multiple debts are consolidated into a single account so borrowers need to pay only a fixed monthly amount to one financial institution, making it easier for them to clear their debts.

The DCP's interest rates are lower than credit card and credit line rates. Compared with the different minimum payment amounts for credit cards and credit lines, the DCP's payment amount per month is fixed for an agreed period with the bank, says Ms Jacquelyn Tan, United Overseas Bank's head of personal financial services for Singapore.

"Borrowers who take up UOB's DCP are given a promotional interest rate of 4.99 per cent per annum till Dec 31 if they take up a 72-month tenor. This works out to an effective interest rate of 9.04 per cent per annum," she adds.

Without a DCP, a borrower is likely to pay an effective interest rate of over 20 per cent per annum.

The DCP is open to Singaporeans and permanent residents earning between $20,000 and $120,000 per annum with net personal assets of less than $2 million. Another condition is to have total interest-bearing unsecured debts on all credit cards and unsecured credit facilities with financial institutions here that exceed 12 times your monthly income.

Another avenue is CCS which offers free talks on debt management and advice on how to draw up and live within a budget. Where applicable, borrowers would be assisted in working out a monthly instalment debt repayment plan.

The number of people counselled at CCS grew from 1,839 in 2013 and 2,459 in 2014 to 4,677 in 2015. Last year, 3,756 people were counselled. This year, the number had already hit 3,791 by November.









8 tips on how to avoid debt
By Lorna Tan, Invest Editor/Senior Correspondent, The Straits Times, 24 Dec 2017

1. SPEND WITHIN YOUR MEANS

The golden rule is to always spend within your means, says Mr Kuo How Nam, chairman of Credit Counselling Singapore.

"Based on what our clients tell us, the most common cause is overspending, that is, they have a lifestyle that is not commensurate with what they earn. Such people need to review their spending habits and be more realistic about what they can afford.

"There may be occasions where there are unexpected expenses and a mismatch between income and expenditure. But the deficit should be covered as promptly as possible and not become a permanent or regular feature," he adds.

2. LOOK AT TOTAL INDEBTEDNESS

Mr Kuo notes that people have a tendency to look at the monthly minimum payments and not their total indebtedness as a measure of affordability.

"This is self-deception and paying just the minimum monthly repayment will take a very long time to reduce debts as most of the payment comprises interest. It is very difficult to get out of credit card debt if they continue to spend and not pay down their debts," he says.

3. BORROW ONLY WHEN NECESSARY

Mrs Ong-Ang Ai Boon, director of the Association of Banks in Singapore, says it is important for consumers to borrow only when necessary.

Mr Anthony Seow, DBS Bank's head of cards and unsecured loans, says it is not advisable to borrow more even if you qualify for a larger amount.

"From time to time, we understand that some customers have financial needs and may need to obtain unsecured financing for many different reasons, such as unexpected medical bills, going on vacations, emergency home repairs or just extra cash to pay their bills. But whatever their reasons, we always advise our customers to be prudent and only borrow an amount they are comfortable repaying," he adds.

4. AVOID FUNDING LIFESTYLE WITH DEBTS

Many are overconfident and think they will always enjoy salary increases and bonus payments that will enable them to pay off their debts one day. When a person is in debt, they have fewer options and buffers available to them and are in a vulnerable position, adds Mr Kuo.

Mrs Ong-Ang's advice is to actively keep tabs on and pay down overall outstanding balances and debts.

5. REDUCE UNNECESSARY EXPENSES

With the uncertainties in the employment market, consumers could lose their source of income and accumulate debts over time. Hence, reducing unnecessary expenses by budgeting and distinguishing between needs and wants, is key to maintaining good financial health, says Mr Kenneth Tan, vice-president of group lifestyle and payment products at OCBC Bank.

6. TRANSFER SOME RISKS TO INSURANCE

A considerable number of people are facing financial difficulties because of extenuating family or medical circumstances. In most cases, planning ahead or having an insurance coverage plan may have helped these affected individuals tremendously, says Mr Tan.

7. MANAGE YOUR CREDIT SPEND

Ms Jacquelyn Tan, United Overseas Bank's head of personal financial services for Singapore, advises you to evaluate your spending habits and needs before applying for a credit card. This will help you choose a card that is most suitable for your lifestyle and help you stretch your dollar.

For example, if you are spending largely on groceries, you could consider cards that enable you to enjoy rebates for everyday spend. If you like to travel, look at cards with the best earn rates for frequent flyer miles.

Be comfortable with the terms and conditions of the card. Familiarise yourself with the interest rates, annual fees, late payment fees and other costs associated with the credit card before signing on the dotted line.

8. MAINTAIN A GOOD CREDIT HISTORY

To ensure a higher chance of qualifying for loans or obtaining credit, you can build up and maintain a good credit history by making sure that you pay all your bills on time.

If you have problems making even the payment for the minimum amount, inform your bank early so that you can work out a manageable repayment scheme. This signifies your commitment to repay. Furthermore, avoid going over the credit limit on your credit cards as this may reflect your inability to handle your finances properly, adds Mr Tan.

Mrs Ong-Ang reminds consumers to update their banks with their current income level so as not to be adversely affected by the borrowing limit.





* Parliament: Moneylenders (Amendment) Bill 2018 passed, 8 Jan 2018 - Stricter loan limits to curb over-borrowing
Upward trend in debt sparks changes to Moneylenders Act
By Seow Bei Yi, The Straits Times, 9 Jan 2018

Borrowers can no longer go from one moneylender to another to become "over-indebted".

In the latest move to regulate the industry, Parliament yesterday approved changes to the Moneylenders Act which, among other things, set an overall loan ceiling.

This is a departure from the current caps, which restrict how much they can borrow from individual moneylenders.

The tightening of the rules is due to "an upward trend in the amount of outstanding debt owed" since 2015, Senior Minister of State for Law Indranee Rajah said when replying to Non-Constituency MP Daniel Goh. She also said that those earning less than $20,000 a year cannot borrow more than $3,000, while the maximum loan for all borrowers is six times their monthly income.

These changes "will help us to nip over-borrowing in the bud before it gets worse", Ms Indranee said.

Moneylenders will also have to get a borrower's credit report from the Moneylenders Credit Bureau before giving a loan. They are required to update the bureau on repayments as well.

However, Ms Indranee noted that the proportion of Singaporeans who over-borrow remains small, at below 2 per cent - or about 610 people - between March 2016 and March last year. These over-borrowers have an outstanding balance that is more than the upcoming loan ceiling.


Nine MPs spoke in support of the changes although several, including Mr Alex Yam (Marsiling-Yew Tee GRC), worry that the stricter rules may drive borrowers to unlicensed moneylenders.

Ms Indranee replied that since the imposition of caps in 2015, arrests for unlicensed moneylending have been falling: "There's no evidence the 2015 tightening pushed more borrowers to unlicensed moneylending. We will, however, continue to monitor this closely."

Other MPs, such as Dr Intan Azura Mokhtar (Ang Mo Kio GRC) and Mr Louis Ng (Nee Soon GRC), asked about the protection of borrowers' information, which moneylenders will have to update and request. Ms Indranee said the moneylenders are subject to regulations as well as the guidelines of the Personal Data Protection Commission.

Mr Desmond Choo (Tampines GRC) asked if there was a need to curb the number of moneylending facilities in the heartland. Ms Indranee said a study done last year with the Singapore Land Authority found that borrowers are increasingly going to moneylenders outside their neighbourhoods.



Other changes to the Act include tighter approval requirements for moneylenders and stricter requirements on loan contracts.

To make the industry more professional, moneylenders have to incorporate as companies and submit annual audited accounts to the Registry of Moneylenders. Almost 70 per cent of about 160 licensed moneylenders here have registered as companies, Ms Indranee said. About 41,000 borrowers took loans from moneylenders as of the third quarter of last year. Around 80 per cent were Singaporeans and permanent residents, with a total outstanding loan amount of $339 million.




Related
MAS: New measure to help individuals manage unsecured debts -15 Dec 2017
Moneylenders (Amendment) Bill 2018
Moneylenders (Amendment) Bill 2018 to Support Safer Access to Credit for Borrowers -8 Jan 2018

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