CREDIT CARD COMPANIES AND CONSUMER CREDIT LAWS

CREDIT CARD COMPANIES AND CONSUMER CREDIT LAWS: 9.

Ms Irene Ng Phek Hoong asked the Deputy Prime Minister and Minister for Finance in view of the rising number of bankruptcies, whether (a) there are adequate checks on credit card companies, especially those which have expanded their customer base to families with lower incomes; and (b) there is a need for the consumer credit laws to be reviewed to make sure that borrowers are given clear information on the penalties for late payments on loans and on how interest is charged.

The Deputy Prime Minister and Minister for Finance (Mr Lee Hsien Loong): Mr Speaker, Sir, over the past two years, the economic downturn has led to an increase in the number of bankruptcies and a rise in unemployment. In this more difficult economic environment, the number of people defaulting on loans and credit card debt will naturally increase, especially when those who are highly leveraged lose their jobs and, consequently, are unable to service their loans. MAS is keeping a close watch on the growing default rates and the rise in consumer credit card debt.

Ms Ng has asked whether there are adequate checks on credit card companies here and suggests that credit card issuers may be extending credit too easily to those in the lower-income group. Banks and other credit card issuers are supervised by the Monetary Authority of Singapore (MAS), and are expected to behave prudently when extending credit. Currently, MAS permits credit card companies to offer credit cards and unsecured credit facilities only to individuals with a minimum annual income

Column: 3291

of $30,000. This is to prevent lower-income individuals from borrowing from financial institutions for consumption, as such individuals are more likely to find themselves unable to service their debts. This policy has served us well thus far, and MAS has no intention of easing our restrictions on credit cards.

Ms Ng has also asked whether consumer credit laws need to be reviewed to ensure consumers have clear information on penalties for late payments on loans and on how interest is charged. MAS' guidelines currently require credit card companies to disclose late payment and finance charges prominently on all monthly statements. The Association of Banks in Singapore (ABS) has also worked on a number of initiatives to improve standards of disclosure. All banks now provide an information leaflet together with the credit card application, highlighting in plain language significant terms and conditions, as well as fees and charges relating to the use of a credit card. ABS is also working to improve its existing Code of Consumer Banking Practice to enhance industry standards in the area of credit cards, and other forms of consumer credit such as housing loans and car loans.

Introducing new regulations for credit is unlikely to solve the problem of rising bankruptcies in Singapore. The long-term solution to a rising incidence of loan defaults and bankruptcies is for Singaporeans to learn how to better manage their finances, including ensuring that they understand all the salient terms and conditions of obtaining credit. To this end, MAS recently launched a national financial education programme, MoneySENSE, to help Singaporeans acquire the skills and knowledge to better manage their finances. Under the programme, Government agencies, industry associations and consumer bodies will work closely together to ensure that consumers get adequate

Column: 3292

information on areas such as budgeting, saving and using credit responsibly. MAS will also work with the Association of Banks and the Consumer Association of Singapore (CASE) to educate consumers on the consequences of late payment on credit cards, and how penalties and late interest charges are computed. Ultimately, consumers must be responsible for their own spending, and not live beyond their means. With the MoneySENSE programme, we hope that consumers will avoid imprudent use of credit, manage their finances proactively and become self-reliant.

Ms Irene Ng Phek Hoong: Sir, the outstanding balance of a credit card attracts a yearly interest rate of 24% and can go up to 36% with the addition of late fees and finance charges. Can the Deputy Prime Minister explain how these charges can be justified?

Mr Lee Hsien Loong: Mr Speaker, Sir, it is not for me to explain how these charges can be justified. This is a free market. There are many credit card companies. Our responsibility is to make sure that their charges are prominently displayed, and if people want to borrow at these rates, I do not think we should stop them completely. What we have done is to impose restrictions on who can borrow and how much they can borrow. So, we have set a minimum annual income of $30,000 and when you borrow, the maximum amount you can borrow is twice your monthly income per card. Unfortunately, we have not yet found a way to stop people from having multiple cards. I know there are some people who have half a dozen cards and they go for two months each, and that is why they run into trouble. We are studying this matter but I do not think it is easy to solve.

Mr R Ravindran: Sir, could I inform the DPM that there is an anomaly? Under the Moneylenders Act, there is a cap of 18%

Column: 3293

on the interest that can be charged by moneylenders because, primarily, it is meant to protect the low-end borrowers. But here we have a case of banks extending credit facilities via credit cards to low-end families also, and yet we do not put a cap on the interest rate that these banks charge. Is it not time that MAS relooked at either lifting the cap under the Moneylenders Act so that they can charge any interest they wish to charge or that we bring down the rate that the banks charge to their customers?

Mr Lee Hsien Loong: Sir, Mr Ravindran has raised an interesting point. Actually, while the moneylenders are lending to low-end customers, the credit card companies are not lending to low-end customers. We have made our rules such that the credit card companies can only lend to people who have a certain reasonable income. We have set it at $30,000 a year. So, that is not a very low-end customer and I think somebody with that income ought to be allowed to make some of his own decisions.

Ms Irene Ng Phek Hoong: Sir, although the criterion may be $30,000 a year and, as we know, it could fluctuate year to year, and it can go down below $30,000 after that person has got his credit card. Sometimes we see residents coming to us with five credit cards and they are unemployed or they had a huge pay cut and they have huge problems paying the loans. Can I ask the Deputy Prime Minister whether something should be done to clamp down on credit card issuers from being so liberal in giving out cards and, at the same time, to exercise flexibility to those who are caught in this trap and need help to restructure their loans rather than to rush to bankrupt them?

Mr Lee Hsien Loong: Mr Speaker, Sir, I think we have a ticklish problem, but we

Column: 3294

do have to make up our minds whether we want to solve people's problems by lending them more or by lending them less. And if you want to lend them less, then certain stringent rules have to apply. If you want to lend them more, then you must be prepared to accept the possibility that at some point, they will look for the MP after having dug themselves deeper into a hole.