Credit card debtors get help

SINGAPORE - Marketing consultant Anna (not her real name), has seven credit cards, two credit lines, and a total debt of $60,000.

After the company she worked for was restructured two years ago, Anna's pay was cut by 70 per cent. She had difficulty paying the minimum sum - which ranged from $100 to $300 -on her credit cards and credit lines.

She was earning $3,000 after tax and CPF deductions before her salary was slashed.

"I started to pay less than the minimum sum on the cards. And it got to the stage where I would pay for one card but not the other. The banks would get their lawyers to send out letters, and the problem snowballed," said the 51-year-old.

On Friday, the Monetary Authority of Singapore( MAS) issued proposals to rein in credit spenders even further, and is seeking feedback from the public.

The changes (see report below) are aimed at helping consumers make better borrowing decisions, or those at risk of credit problems from getting into greater debt, while improving the lending and disclosure practices of financial institutions.

In October, the Credit Bureau Singapore reported that while people defaulting on their credit card payments had dropped by 14 per cent over the last 10 years, the average monthly rollover on credit card balances per consumer has increased by 54 per cent to $5,034 in 2012 from $3,275 in 2002.

Women now make up 41 per cent of credit card customers against 33 per cent in 2002. The number of credit card customers, too, has almost doubled to 1.45 million over the same period.

Anna is not alone. Market analyst Huang Limin, 29, owes $6,500 on her two credit cards and one credit line. She declined to reveal her salary but admits she has "overleveraged" herself, spending on her credit cards on holidays, alcoholic drinks and clothes.

Pay off

Said Miss Huang: "Servicing my debt has affected my ability to save. It's going to take a long time to pay off the debt. I've already paid offone card and cancelled it."

As for Anna, she said that it will take her seven years to pay off the loan.

The divorcee recently signed herself up for the debt management programme of Credit Counselling Singapore (CCS).

In her bid to bond with her teenage son who lives with her ex-husband, she had chalked up a huge debt over the last five years by not paying off her outstanding balances in full, and spending huge amounts on overseas trips with him.

Both Anna and Miss Huang said they were in favour of tougher rules as it will help people avoid overspending and getting into debts. And that's not all. The proposals will make it easier for banks to assess credit risks, CCS president Kuo How Nam said.

"The credit report will now include the total of all unsecured facilities as well as the total outstandings (of a credit card holder). Previously, only the banks and the type of facilities were reported," said Mr Kuo.

Additionally, a "delinquent payment" on one bank account - a non payment of 60 days - will now be reported to the Credit Bureau (Singapore), he noted.

"So poor payment behaviour at one bank will trigger a review at other banks," he said.

Those who intend to pay off their outstanding debt by transferring their debt to a lower interest rate facility as opposed to the 24 per cent charged by credit cards, would be affected, said Mr Leong Sze Hian, past president of the Society of Financial Service Professionals.

Said Mr Leong: "If you're applying for a balance transfer, or a new credit line which offers a promotional rate, the bank will now be able to review all your outstanding debts with other banks, and may not want to give you that balance transfer."

However, Mr Kuo felt that the proposed changes would better restrict the ability of card holders to build up and to rollover their debts over a long period of time.

Said Mr Kuo: "Credit card rollover debt is now almost $5 billion and the number of principal cards issued jumped by almost 1 million in the past one year to 7.7 cards for about 1.45 million individuals.

"The bad debts charged off this year has been creeping up to 5.1 per cent for the third quarter compared to around 4.5 per cent last year."

MAS seeking feedback on proposed changes

1.Financial institutions will need to review a person's outstanding debt and credit limits across all banks before granting the person a new credit card, an increase in his credit limit, or new credit facilities.

2.Financial institutions will have to make clear to people who roll over their credit card debts about the potential cost and extent of the debt they will end up accumulating.

3.Financial institutions cannot make unsolicited offers to customers to increase their credit limits on their cards and will need to obtain the consent of customers before they can do so.

4.Those who owe financial institutions for more than 60 days will not be allowed to charge further amounts to their credit cards and cannot obtain new cards or other unsecured credit facilities.

5.Those whose interest balances are more than two months of their salary for six months in a row will not be allowed to charge further amounts to their cards or obtain new cards.

6.Retirees above 55 can qualify for a credit card if they have an annual income of at least $15,000, net personal assets exceeding $750,000, or a guarantor with an annual income of at least $30,000.