CREDIT CARD COMPANIES

Column No : 1994

CREDIT CARD COMPANIES: 19.

Assoc. Prof. Ong Soh Khim asked the Senior Minister in respect of credit card companies, (a) what are the measures to (i) curb over-aggressive marketing campaigns; (ii) regulate the ready availability of easy credit; (iii) curb the aggressive tactics employed by their debt collectors; and (b) whether there are any reviews of the current insolvency practices to include mandated intermediation as part of the legal process before bankruptcy.

The Minister for Education (Mr Tharman Shanmugaratnam) (for the Senior Minister): The Government has instituted several rules to curb the easy availability of credit. Under MAS' requirements, credit card issuers are only allowed to issue unsecured credit cards to individuals who satisfy a minimum income requirement. The maximum credit extended is also capped at twice the individual's monthly income. Except for existing credit customers, card issuers are not allowed to send credit cards to persons who have not requested for them in writing. They are also not allowed to receive applications for credit cards at temporary sales booths.

Dr Ong also asked about debt collectors with respect to unpaid credit card debts. MAS expects the banks to perform due diligence and assess the track record, reputation and capability of external debt collecting agencies that the banks engage. Banks must oversee and be responsible for the debt collecting work contracted out to these agencies, including managing any risks arising from the tactics employed by these agencies.

On a matter of insolvency practices, the Insolvency and Public Trustee Office has been carrying out pre-bankruptcy mediation since 2002 through its Pre-bankruptcy Advisory and Mediation Centre so as to help debtors' bankruptcy where possible. Officers from the centre help to explain the bankruptcy procedures to debtors and provide advice on alternatives to bankruptcy. Trained mediators also facilitate mediation sessions between creditors and debtors to assist them to reach an amicable settlement. A fair number of individuals have benefited from the service. Last year, some 1,700 individuals approached the centre for assistance. To advise borrowers with serious debt problems, Credit Counselling Singapore (CCS), a non-profit organisation, was launched in October 2004. CCS counsels the debtors and often helps them to work out a debt repayment plan and, again, here, a fair number of individuals have benefited from CCS' assistance.

So there are credit counselling schemes in place. MoneySENSE, the national financial education programme, is also stepping up

its education programmes. But, ultimately, the key to their problems is for consumers to take personal responsibility for managing their finances and to plan for the long term.

Assoc. Prof. Ong Soh Khim: Sir, the Consumer Credit Bureau of Singapore actually issues credit reports of the applicants which show the last 12 months' status of all the credit facilities of the applicants. My first question is: do these banks or credit facilities companies thoroughly check the credit reports of the applicants? If yes, how do they evaluate these credit reports of the applicants, instead of just issuing new cards to these applicants, making their actual credit limits to be two times of their income multiplied by the number of credit cards that they actually hold?

The next question I have is that there is a practice of banks issuing easy credit or ready credit to applicants for them to transfer the entire amount from a credit card into an easy credit or a ready credit at a lower interest. So what is the Minister's view on this?

Mr Tharman Shanmugaratnam: On the first question, it is good banking practice for our banks to check with the Consumer Credit Bureau for debtors' credit history with other banks. As a matter of fact, this is done. I call tell Prof. Ong that amongst the major banks in Singapore, those that account for the bulk of consumer credit, it is done as a matter of course, ie, close to 100% of the applications they get are first checked with the Consumer Credit Bureau. And we have to leave it to the banks to make their own credit judgment as to whether they think the credit of the individual is sound and whether they are willing to extend a credit card to an individual. Of course, from time to time, MAS will have a look at the banks' procedures to make sure that they are robust.

On the second matter, there are some innovations in the credit market, some blurring of the lines between credit cards and other unsecured credit schemes. There are separate limits that are set, however, for these things. In other words, for credit cards, we have the two-month income limit. We have a separate two-month income limit on any other form of unsecured credit. So it is still constrained. At the end of the day, you cannot lend more than four months no matter how you play around with the distinction between these different instruments. So there is a limit of four months of income ultimately on the sum total of credit you can get as a consumer from the bank.

Assoc. Prof. Ong Soh Khim: Sir, there have been reports of many Singaporeans suffering from credit card debts, some holding as many as eight to 10 cards with a total debt of $40,000-$90,000, and that is many times of their monthly income. So I would like the Minister to share with this House on what is the percentage of this group of people who are suffering from credit card debts.

The other question I have is that, looking at the 12-month history of the credit report of an applicant, the banks know that the applicant is already rolling over every month and yet, they still chose to give them ready credit, ie, to transfer the entire balance into the ready credit, knowing well that they will not be able to pay up. What is the Minister's view on this?

Mr Tharman Shanmugaratnam: I do not have precise data on the number of individuals who have large amounts of unpaid debt. But the problem on the whole is not a serious one. The amount of bad debt, as a percentage of total receivables, has come down over the last few years. It has come down from about 7% three years ago to less than 3% currently. That is in fact a more favourable figure than many other countries, such as the United States.

On the Member's second point, we have to leave it to the banks to make their judgements. The banks will not lend to someone whom they think is at risk of not repaying. It does not make sense for the banks. So it is a question of the banks setting up a risk assessment system. MAS is quite satisfied that they have the system in place. From time to time, we have to check and we have to remind their management to keep an eye on these things. But it is not a serious problem overall.