RESPONSE TO FEEDBACK RECEIVED PROPOSED CHANGES TO CREDIT CARD & UNSECURED CREDIT RULES

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1 RESPONSE TO FEEDBACK RECEIVED PROPOSED CHANGES TO CREDIT CARD & UNSECURED CREDIT RULES 1 Introduction 1.1 On 21 December 2012, MAS issued a consultation paper on proposed changes to credit card and unsecured credit rules. The changes aim to improve lending practices by financial institutions ( FIs ), enable individuals to make better borrowing decisions, and help individuals at risk of credit problems avoid getting into greater debt. 1.2 Consultation closed on 21 Jan 2013, with feedback received from 24 parties, including the Association of Banks in Singapore ( ABS ), 1 FIs, Credit Counselling Singapore, the Institute for Financial Literacy, DP Credit Bureau Pte Ltd and members of the public. MAS has carefully considered the feedback received, and comments that are of wider interest, together with our responses reflecting the finalised policies, are set out below. We would like to thank all respondents for their comments. 1.3 We are also issuing the draft amended Banking (Credit Card and Charge Card) Regulations, MAS Notice 635 Unsecured Credit Facilities to Individuals, MAS Notice 759 Collection of Statistical Returns for Credit Cards, MAS Notice 760 Collection of Statistical Returns for Unsecured Credit Facilities and other related Notices for consultation. Interested persons are invited to submit their comments by 10 October The consultation paper containing the draft amended Regulations and Notices can be accessed at 1 ABS provided the feedback on behalf of 13 FIs. 1

2 Proposal A: Require FIs to review borrowers outstanding debt and credit limits aggregated across different FIs when conducting credit bureau checks. Amounts for unsecured credit facilities 2 in the credit bureau s records should be aggregated separately from amounts for secured credit facilities. Scope of the Proposal Excluding instalment loans 2.1 Two respondents suggested that information on instalment loans be excluded from the aggregated outstanding balances and credit limits data. 2.2 Instalment loans are still considered debt and thus should be included in the aggregated data. Actions that FIs have to take in relation to at-risk individuals 2.3 A few respondents sought clarification as to whether MAS requires any specific actions to be taken when the data suggests that an individual has too much debt. 2.4 MAS is not prescribing any specific action to be taken, other than those set out in proposals G and H. Generally, FIs have the flexibility to offer solutions taking into account each borrower s financial position. Solutions may range from restricting new credit, reducing existing credit limits to converting existing debt into affordable instalment loans to instil the discipline of regular repayments. 2 This includes credit cards and charge cards. 2

3 Information in the Credit Bureau Working with Credit Bureaus and Other FIs 2.5 Respondents noted that to implement the proposal, the credit bureaus will have to enhance their systems and FIs will have to cooperate with one another and the credit bureau. Respondents sought assurance that FIs can rely on information in the credit bureaus to satisfy the requirement for comprehensive checks on aggregated outstanding balances and credit limits. 2.6 FIs will have to work together and with the credit bureaus to ensure compliance with the new rule. This may involve FIs contributing data on outstanding balances and credit limits, and the credit bureaus aggregating the data and providing aggregated data for secured, partially secured, and unsecured credit facilities to their members for credit assessment purposes. MAS will clarify within our rules that FIs may rely on credit bureau reports to review outstanding amounts and credit limits of loans taken across FIs. Data Templates, Data Standards, and Submission Frequency 2.7 A few respondents presumed that sample data templates will be provided by the relevant authority. Others raised data specification issues including (a) whether outstanding balances include both billed and unbilled amounts; (b) whether loans committed but not disbursed should be reported; (c) whether data should be based on end of period balances (e.g. month-end) or sum of balances of various cycles; (d) how combined credit limits that are shared across all cards issued by an issuer should be reported to avoid doublecounting 3 ; and (e) whether outstanding balances and credit limits data should be displayed by product categories (e.g. credit card, housing loans, etc.). One respondent noted that records in the credit bureau are not updated on a real- 3 It is common for banks to apply a common shared aggregated credit limit to all cards issued by the bank. For instance, Bank A may impose a $10,000 credit limit for Card 1, Card 2 and Card 3 issued to the borrower. Collectively, the 3 cards share a single credit line of $10,000. 3

4 time basis, while another supported continuing with the current monthly submission frequency. 2.8 In general, members of the credit bureau(s) should work with the credit bureau(s) on matters relating to data templates and data specifications. While MAS will not be providing sample data templates, MAS expects that outstanding balances should include unbilled amounts as these are also debt outstanding. Committed loans should be included in the credit limits, even if they have yet to be disbursed. Members of the credit bureaus should discuss and come to a consensus on issues (c), (d) and (e), and whether the current frequency of data upload remains useful, bearing in mind the objective of enhancing their credit assessment processes. However, the credit limits and outstanding balances of secured credit cards and secured charge cards should not be included in the credit bureau report to protect the confidentiality of deposit information. 4 Confidentiality of Information in Credit Bureau 2.9 One respondent highlighted the potential risk that the additional data in the credit bureau may be misused for inappropriate purposes The Banking Act states clearly that information in the credit bureau must be used strictly for credit assessment purposes. Credit bureaus and their members are required to adhere to this. 4 The credit limit of a secured card is dependent on the amount of deposits placed with the card issuer. 4

5 Others Triggers for credit bureau checks 2.11 One respondent sought clarification that the mandatory credit bureau checks are event-driven (such as granting of new facilities, increase of credit limit, etc.) and not time-driven (such as periodic reviews) The amended rules will specify situations which require credit bureau checks. This includes granting of new facilities (existing rule), increasing credit limits of existing facilities (Proposal B), and when FIs receive information that calls into question the credit-worthiness of their borrowers (Proposal C). Although the mandatory credit bureau checks are not time-driven, FIs are encouraged to conduct periodic checks and credit reviews. Whether fees for credit bureau reports should be imposed on prospective borrowers 2.13 One respondent suggested charging the cost of obtaining credit bureau reports to borrowers who apply for multiple credit lines fees to discourage borrowers from applying for additional credit The charging of fees, including whether FIs should pass on the cost of conducting credit bureau checks to consumers, is a business decision. Moreover, the effect of mandating a fee can be negated by sign-on gifts, rewards, discounts and rebates. The cost of a credit report, typically at less than $7, is unlikely to have a significant deterrent effect. 5

6 Proposal B: Require FIs to conduct credit bureau checks and obtain income documents for credit limit increases if these have not been conducted or obtained respectively in the 3 months prior to the credit limit increase. Scope of the Proposal Individuals with an annual income of at least $120,000 or total net personal assets exceeding $2million 3.1 One respondent asked if there is a need to obtain updated income documents for individuals with an annual income of at least $120,000 or total net personal assets exceeding $2m, given that such individuals are exempt from the maximum regulatory credit limits. Another suggested allowing asset proof as an alternative to income documents. 3.2 FIs must obtain the income documents of individuals with an annual income of at least $120,000 before increasing their credit limits, if these have not been obtained in the 3 months prior thereto. This is unless they had earlier been granted credit based on their total net personal assets exceeding $2 million, in which case asset proof may be accepted instead. Where the fresh asset proof obtained shows that their total net personal assets no longer exceed $2 million, FIs will have to obtain income documents. Checks on income documents and asset proof will ensure that such individuals still qualify for exemption from the maximum regulatory credit limits and also allow FIs to manage their risks more effectively. Whether FIs can do away with the checks in certain circumstances 3.3 One respondent sought confirmation that the transfer of individual product limits (e.g. from Bank X s Card A to Bank X s Card B) within the customer s aggregate credit limit is excluded from this proposal. Other respondents suggested that updated income documents need not be obtained if the borrower represents that there is no change in employment, and that 6

7 the proposal should only apply to customer-initiated increases or credit limit increases above $10, Credit bureau and income checks do not have to be conducted for the transfer of credit limits from one product to another product granted to the same individual. Checks are required when the aggregate credit limit across credit cards and unsecured credit facilities extended by a lender to the individual is to be increased. Income checks must be performed even if employment has not changed, as income can still change in this situation. Income checks have to be performed for both customer-initiated and lenderinitiated increases since both involve an extension of credit. Checks are required for all credit limit increases, not only those above $10,000; credit limit increases of less than $10,000 may still be excessive for some borrowers. Whether checks are required for secured credit/charge cards 3.5 One respondent sought clarification on whether secured cards will be excluded from this proposal. 3.6 Income checks need not be performed for secured cards; however, credit bureau checks will still be required. Income and credit bureau checks to be conducted Whether IRAS Notice of Assessment dated more than 3 months ago is sufficient proof of income 3.7 Several respondents suggested recognising a Notice of Assessment (NOA) of income tax issued by the Inland Revenue Authority of Singapore (IRAS) as sufficient proof of income under this proposal, even if the NOA reflects the annual income earned before the last 3 months. 7

8 3.8 As the NOA is a common income document relied upon and that there may not be alternative reliable documents that individuals without fixed monthly incomes can furnish, MAS will accept the latest available NOA from IRAS as sufficient income documentation for individuals without fixed monthly incomes, even if the NOA is dated more than 3 months ago. Requiring credit bureau checks to be conducted within a month prior to the credit limit increase 3.9 One respondent commented that conducting credit bureau checks prior to a credit limit increase is reasonable if the last credit bureau check was done more than 3 months ago The public consultation paper had stated that credit bureau checks conducted within 3 months prior to the credit limit increase were sufficient to satisfy the requirement to conduct credit bureau checks under this proposal. However, to enhance effectiveness of Proposal G (which disallows credit limit increases for borrowers who are more than 60 days past due), MAS will instead require credit bureau checks to be conducted within a month prior to the credit limit increase. This is to ensure that a person who is currently 60 days or more past due but who might not have been so 3 months ago will not be granted an increase in credit limit. Further, with the removal of the proposed prohibition on unsolicited offers of credit limit increases (see responses to feedback received on Proposal E), credit bureau checks within a month prior to any credit limit increase will serve as an important safeguard against a borrower obtaining more credit that he should. This check should therefore be as current as possible for maximum effectiveness. 8

9 Proposal C: Require FIs to conduct comprehensive credit bureau checks and request updated income documents when anything that may impinge on the creditworthiness of cardholders or borrowers comes to FIs attention, unless credit bureau checks and income documents have been conducted and obtained respectively in the 3 months prior to the alert. Source of Alerts Authenticating identity of person providing the alert 4.1 A few respondents suggested that FIs should only be required to act on alerts from accredited sources and be allowed to ignore alerts if FIs have reasonable grounds to doubt their credibility. One respondent suggested setting up a neutral organisation to ascertain the alerts authenticity and amending the Banking Act to facilitate exchange of customer information with the neutral organisation. A few respondents highlighted that it is difficult to authenticate the identity of the person who provided the alert (e.g. whether he is truly a family member), and that time and effort will be required to investigate whether the alerts are bona fide. 4.2 The proposal requires FIs to act on all alerts, not only alerts raised by family members and credit counsellors. The proposal does not require authenticating the source of the alerts received. An accreditation system will entail costs (e.g. setting up a panel to accredit sources and maintain an updated list of accredited sources, etc.) and any list of accredited sources may not be exhaustive, resulting in alerts from genuine parties being wrongly dismissed. Instead of expending efforts to verify the credibility of the sources, it is more efficient to conduct a credit assessment, which we assess to be not overly onerous. To minimise unnecessary and duplicate checks, for this proposal, both fresh credit bureau and income checks need not be conducted if they have been done in the last 3 months. 5 5 For individuals without fixed monthly pay, the latest available NOA from IRAS will be sufficient even if the NOA is dated more than 3 months ago. 9

10 Nature and scope of the alerts Clarifying that the trigger refers to proactive alerts sent to FIs 4.3 One respondent suggested amending the original language ( comes to FIs attention ) to an alternative (e.g. alerted to the FIs ) to make it clear that action is required when FIs are proactively informed by another party. 4.4 We agree with this suggestion which minimises the burden upon FIs and will clarify the language in the rules. The alerts which FIs are expected to act on include both verbal (e.g. phone calls) and written (e.g. s, letters) notifications. Alerts relating to individuals which are not their customers 4.5 One respondent sought clarification as to whether FIs are expected to retain alerts relating to individuals with whom they have no lending relationship in their records to aid them in their assessment of new credit applications. Another respondent asked whether FIs will be expected to set up systems to monitor and manage alerts, which can be challenging and costly. 4.6 We encourage FIs to consider retaining alerts in their records to aid their credit assessment of both existing and prospective customers. FIs will have the discretion to determine how they want to operationalise the followup when an alert is received. Credit Bureau checks Clarifying scope of credit bureau checks 4.7 One respondent explained that it currently extracts only fields it finds useful for credit assessments in its quarterly credit bureau checks. 10

11 4.8 MAS will clarify in the amended rules that credit bureau checks should minimally include a review of an individual s payment history and the aggregate outstanding balances and credit limits of his existing credit facilities. Income checks Whether other proof can be accepted as an alternative to income documents 4.9 One respondent suggested allowing asset proof as an alternative to income documents. Another respondent felt that it already has various means to assess customers credit-worthiness and income documents are not always necessary Asset proof and other documents can be used to supplement but not replace income documents. Income documents are necessary to ensure compliance with the maximum regulatory credit limit. However, for individuals who have earlier been granted credit based on their total net personal assets exceeding $2 million, asset proof may be accepted as an alternative to income documents. Where the new asset proof obtained shows that total net personal assets no longer exceed $2 million, FIs will have to request income documents. Consequences of not obtaining income documents 4.11 Several respondents sought confirmation that failure to obtain income documents need not result in a mandatory termination of the credit facilities The proposal requires FIs to request updated income documents. If, in spite of the FIs best efforts, documents cannot be obtained, FIs may, in the absence of income documents, rely on credit bureau checks and other information to perform credit assessments. 11

12 Alternative to checks Doing away with credit bureau and income checks in cases where credit lines are or will be suspended 4.13 One respondent explained that it may decide to suspend the individual s credit lines upon receiving an alert impinging on his creditworthiness, without conducting further credit bureau or income checks MAS agrees that additional checks are not needed where FIs suspend the credit lines until all outstanding amounts are fully paid, and will clarify this in the amended rules. Others Privacy/confidentiality might be impinged 4.15 One respondent felt that customer privacy/confidentiality might be impinged Privacy of a customer must always be protected. Banking secrecy under the Banking Act must be observed. There is no need, and FIs should not, divulge confidential customer information to the person who provided the alert. 6 6 The proposal also does not require the alerts to be entered into the credit bureau records of the individuals to whom the alerts pertain. 12

13 Proposal D: Require disclosures on length of repayment period and total amount payable if only the minimum amount is paid and the total amount payable in 6 months if no payment is made. Disclosure Contents Highlighting the consequences of non-payment 5.1 One respondent suggested highlighting the impact of non-payments such as potential legal actions and tainted credit records. 5.2 The risk of legal action is already highlighted in the proposed illustration. We will also include within the illustration a statement that past due payment status will be reflected in credit bureau reports and may negatively affect applications for future loans. Interest rates to be applied 5.3 Several respondents gave feedback that it is operationally easier for FIs to assume a standard interest rate in its computation, rather than for different rates to be applied to different periods, even though FIs may extend promotional interest rates for a limited period to some customers. 5.4 MAS will require FIs to use the interest rates generally applied on the products in question, and will only allow promotional interest rates to be used if those rates will in fact be applied to the accounts and only for the periods during which the promotional interest rates will be so applied. For the avoidance of doubt, the general interest rate refers to the interest rate that the FI in question typically imposes and not the industry average. In cases where multiple products (e.g. cash advance, retail purchase) are charged to a single credit card account, MAS will allow FIs to use the retail purchase interest 13

14 rate in the computation. However, FIs must disclose that costs will be higher than illustrated if the individual holds balances such as cash advances which may incur higher interest rates. Other applicable charges should also be included in the computation 5.5 One respondent highlighted that, in addition to interest charges and late fees, FIs may also impose other penalty charges such as over-limit fees. Another respondent sought clarification on whether computation should be based on the overdrawn interest rate if the account crosses the credit limit. 5.6 Relevant charges, including over-limit fees and over-limit interest rates, should be included in the illustrations where applicable. Minimum amount repaid 5.7 Respondents suggested simplifying the computation by allowing FIs to assume that the same dollar amount, equivalent to the current month s minimum amount, is being repaid in each subsequent month. 5.8 MAS is agreeable to simplifying the computation to one that assumes that the same dollar amount, equivalent to the current month s minimum amount, is being repaid in each subsequent month, provided that the disclosure properly reflects this repayment assumption. Limit illustrations to payment hierarchy 5.9 One respondent suggested replacing the proposed disclosure with one on payment hierarchy that illustrates how payments are allocated into various payment plans and balances. 14

15 5.10 For the purpose of this standardised presentation format, an illustration on the total amount payable is likely to be relevant to more customers as not all customers charge multiple products (e.g. cash advance, retail purchase) with different payment priorities to a single account. MAS nonetheless agrees that payment hierarchies should be disclosed clearly to customers, and FIs are encouraged to include this as an additional piece of information to that prescribed. Presentation Format Improvements to presentation format 5.11 One respondent suggested that disclosures should be made at product rather than account levels in cases where multiple products (e.g. cash advance, retail purchase) are charged to single credit card accounts MAS agrees that disclosures at the product level can be useful as they may more clearly highlight the interest charges of different products. MAS will therefore allow FIs the discretion to disclose by product levels (e.g. breakdown credit card debt into retail purchases, cash advance, etc.), provided they also disclose the aggregated amount payable at the account level. The presentation format will be prescribed in the rules; the FIs may nonetheless choose to include additional information to that prescribed. Notification Frequency and Mode Quarterly notifications 5.13 One respondent suggested sending customised notifications (i.e. using the customer s outstanding balance) quarterly instead of monthly. 15

16 5.14 Monthly customised reminders to customers who have not paid in full will help borrowers to make more timely decisions. Whether illustration can be displayed on a separate mailer 5.15 Several respondents suggested that FIs be given the flexibility to display the illustration either in the monthly billing statement or in a separate mailer A separate mailer is acceptable if it is attached to the top of the billing statement (e.g. by inserting the disclosure as a cover page to the billing statement). Others Replacing disclosure with online calculator 5.17 A few respondents suggested that it may be more useful to replace the proposed disclosure with an online calculator on the bank s website for individuals to calculate different payment scenarios other than minimum payment and non-payment An online calculator is helpful and we encourage FIs to install online calculators. However, online calculators are not sufficient and less useful for the uninitiated. Instead, disclosures sent proactively to customers will be more helpful. 16

17 Proposal E: Disallow unsolicited offers to increase credit limit and require FIs to obtain borrowers consent on the amount of credit limit increase. Disallowing unsolicited offers to increase credit limit Whether unsolicited offers of credit limit increases should be disallowed 6.1 Some respondents felt that offering credit limit increases are valueadded services for credit-worthy customers. Several respondents highlighted that with the prohibition, FIs may be more inclined to grant the full amount of the regulatory credit limit when the credit lines are first granted, which may be less prudent than existing practice. Another respondent felt that a prohibition is not necessary since FIs are likely to, on their own, exercise care in granting credit increases as such extensions entailed increased capital requirements for FIs. 6.2 MAS has carefully considered the concerns raised and notes that additional safeguards will be put in place to protect consumers. These include the Do Not Call Register to be set up pursuant to the new Personal Data Protection Act which consumers can ask to be placed on should they not wish to be contacted by telemarketers. Further, Proposal B (which requires FIs to conduct credit bureau and income checks for credit limit increases) will help to ensure that borrowers are not granted more credit than they can manage. Taking into account the feedback received and the additional safeguards that will be put in place, MAS will not disallow unsolicited offers of credit limit increases. Nonetheless, FIs will still have to obtain borrowers consent on the amount of credit limit increases to be granted before increasing their credit limits. 7 7 Consent to the amount of credit limit increase can be provided over recorded telephone calls. For offers to increase credit limits made over telephone calls initiated by FIs, FIs shall not act on the consent given in the same phone call until the individual confirms in a document signed by him, at least 5 business days after, that the FI should proceed with his request. 17

18 Requiring FIs to obtain borrowers consent on the amount of credit limit increase 6.3 A few respondents suggested that the requirement to obtain consent on the amount of credit limit increase can be satisfied by asking customers to indicate their preferred credit limits, and informing them upfront that they will be extended a credit limit that is not more than any of the following: (a) the regulatory limit; (b) the customer s preferred credit limit; and (c) the limit that the FI is willing to extend. 6.4 MAS agrees with the suggestion. However, for the avoidance of doubt, for customers who did not indicate a preferred credit limit, FIs have to obtain their consent on the amount before activating the increased limit. Proposal F: Allow borrowers to indicate their preferred credit limits in application forms for credit facilities and credit limit changes. Scope of application 7.1 It was queried whether the proposal applies to existing borrowers and borrowers with an annual income of at least $120,000 or total net personal assets exceeding $2million. 7.2 The proposal applies to new borrowers applying for new cards and unsecured credit lines and to existing borrowers applying for changes to their credit limits. The proposal also applies to borrowers with an annual income of at least $120,000 or total net personal assets exceeding $2million, as this group should also be empowered to indicate their preferred credit limits. 18

19 Whether minimum credit limits can be indicated in application forms 7.3 One respondent gave feedback that card associations (e.g. Visa) prescribe minimum spending limits for certain types of cards (e.g. Visa Infinite, Visa Signature, etc) and asked if FIs may indicate minimum credit limits required in the application forms. 7.4 FIs may disclose the minimum credit limits prescribed by card associations in the application forms. Proposal G: Disallow further amounts to be charged to credit cards, charge cards, and unsecured credit facilities of individuals whose debts with the FI are 60 days or more past due. Scope of Proposal Whether balance transfers, micro-credit cards 8 and secured credit cards are caught by this proposal 8.1 One respondent asked if individuals who are 60 days or more past due will be allowed to obtain new micro-credit cards and secured credit cards from other FIs. Another respondent felt that secured cards should be exempted from the proposal. Another respondent asked if balance transfers are considered unsecured credit facilities which are subject to the proposal. 8.2 FIs will not be allowed to issue new micro-credit cards and secured credit cards to individuals who are caught by the proposal. This is to prevent individuals who already have difficulty repaying their existing debt from accumulating further debt. FIs will, however, be allowed to grant balance transfers to individuals who are 60 days or more past due to enable borrowers to repay existing debt owed to another FI, provided the amount of balance 8 Micro-credit cards refer to credit cards with credit limits of $500 or less. 19

20 transfers granted is not more than what is owed to that other FI. For this purpose, FIs will also be permitted to exceed the regulatory credit limits of 4 months income (for individuals with annual incomes of at least $30,000) and 2 months income (for individuals with annual incomes of below $30,000). This is to enable individuals to refinance existing debt at potentially lower interest rates. Excluding small amounts, disputed transactions, fees and charges, and annual fees 8.3 Several respondents asked if small amounts can be exempted. One respondent noted that some individuals might have fallen more than 60 days past due because of disputed transactions. A few respondents suggested excluding annual fees in the computation of the past due amounts. 8.4 Individuals who are unable to pay even small amounts should be accorded even more protection. Instead of exempting small amounts which can be arbitrary, MAS will give FIs the discretion to exclude transactions, fees and charges in dispute in the computation of amounts past due. MAS will also allow annual fees to be excluded from the computation of outstanding balances in both Proposals G and H. This recognises that cardholders failure to pay disputed transactions, fees and charges, and annual fees, may not be indicative of their inability to repay. Exempting individuals who are 60 days or more past due on two or fewer credit facilities 8.5 One respondent suggested exempting individuals who are 60 days or more past due on only two or fewer unsecured credit facilities. 8.6 Being past due for more than 60 days even for a single credit facility is a 20

21 negative credit event. Prompt action should be taken before the borrower becomes past due on other facilities. Definition of past due 8.7 A few respondents asked if a borrower will be considered past due if he promptly makes the full minimum payments but part of his loan or credit card balance remains outstanding. Another respondent sought confirmation that a cardholder should be considered past due only after the expiry of the payment grace period as interest is not charged until then. 8.8 Generally, most credit card agreements regard an account to be past due if the minimum payment is not paid by the payment due date when the grace period expires. Thus, a borrower who pays the required minimum payment by the payment due date will not be regarded as past due even if part of the loan remains outstanding and unpaid. Suspension Allow FIs to block accounts on a product rather than customer level 8.9 A few respondents suggested that instead of suspending all credit cards and unsecured credit lines extended to a customer who has fallen past due on any card or credit line that the FI has extended, FIs can be permitted to suspend only the card or line that is past due. It is costly from a system angle for FIs to link systems for credit cards and unsecured credit facilities, especially given that past due borrowers make up an insignificant percentage of FIs unsecured credit portfolio Credit risks should be managed at a borrower level as credit cards and unsecured credit lines extended to the same borrower are exposed to the same borrower s credit risk. This is supported by the fact that borrowers tend 21

22 to exhibit similar delinquent behaviour across different unsecured credit facilities. We understand that a few FIs are already managing facilities on a customer level. The proposal encourages other FIs to similarly build a single customer view. Allowing recurring payments to be charged 8.11 One respondent suggested that FIs should be allowed to charge recurring payments, which typically include payments on utilities bills, phone bills, town council fees and insurance premiums, even to credit cards that 60 days or more past due as disallowing such payments may cause hardship Credit cards and unsecured credit facilities need to be suspended only when the accounts continue to be past due for 60 days or more. Prior to the accounts being suspended, FIs should proactively follow up with past due customers during the grace period of 60 days and advise them of the consequences of late payment. Whether FIs can continue to bill transactions that took place before the customer became more than 60 days past due 8.13 Several respondents sought confirmation that FIs can continue to bill transactions entered (e.g. instalment amounts, transactions posted late by merchants) before the customer became more than 60 days past due, to cards and unsecured credit lines that are subsequently suspended Amounts charged prior to the customer s debt falling 60 days or more past due can still be billed to the customer. 22

23 Consequences of suspending Borrowers may turn to moneylenders 8.15 A few respondents felt that some borrowers may find the proposal too restrictive and turn to moneylenders MAS understands that most FIs already limit credit extension when accounts are more than 30 days past due. The restriction in the proposal sets in 60 days after the payment due date and thus borrowers will be provided some time to make good on their minimum payments. As a concession, borrowers with needs for loans required for purposes set out in paragraphs 9(c)-(k) of MAS Notice 635 Unsecured Credit Facilities to Individuals, will still be permitted to obtain an unsecured loan, even if they have breached this proposal. Reinstatement Whether individuals have to pay off all outstanding balances before accounts can be reinstated 8.17 One respondent asked if individuals have to pay off all outstanding balances before accounts can be reinstated, as they may turn to illegal moneylenders if this is the case FIs are allowed to reinstate access when the borrower s debt on all credit cards, charge cards and unsecured credit facilities extended by the FI are no longer past due. There is no requirement for all balances to be fully paid off. 23

24 Whether FIs can reinstate access without obtaining income documents and conduct credit bureau checks 8.19 A few respondents suggested that FIs should have the discretion to determine whether updated income documents and credit bureau checks are necessary to assess the creditworthiness of the borrowers. One respondent suggested that FIs should be allowed to reinstate accounts even if the customer does not provide updated income documents For consistency in implementation, for both Proposals G and H, FIs will be required to conduct credit bureau checks and obtain income documents 9 before the suspension can be lifted, unless such credit bureau checks and income documents have already been conducted and obtained within 3 months and 1 month respectively prior to the reinstatement of the accounts. FIs are generally not allowed to reinstate accounts if the customer does not provide updated income documents. For individuals who have earlier been granted credit based on their total net personal assets exceeding $2 million, asset proof may be accepted as an alternative to income documents. However, where the new asset proof obtained shows that total net personal assets no longer exceed $2 million, FIs will have to obtain income documents. Timeliness of credit bureau records 8.21 Two respondents noted that there is a time lapse between payment and uploading of information to a credit bureau. Thus, customers who have made good on their payments with other FIs but whose bureau records are not yet updated may be disadvantaged. 9 Where the borrower does not have a fixed monthly income, a FI may rely on the most updated Notice of Assessment (NOA) from IRAS even if the NOA is dated more than 3 months prior to the date the accounts are reinstated. 24

25 8.22 As mentioned in the consultation paper, customers can furnish additional information to FIs (e.g. online statements from other FIs showing the latest account status) to supplement credit bureau records to prove that they have made good on their debts with other FIs One respondent highlighted that there could be a time lapse between receiving information from the credit bureau and actions taken by the bank. Another respondent suggested implementing suspension on a monthly basis to align it to the frequency of upload to the credit bureau Lenders whose loans are more than 60 days past due should not need to depend on the credit bureau to trigger suspensions as the lenders can rely on their internal records to identify whether any of the cards and unsecured credit facilities extended by the lender to the individual is more than 60 days past due. Other suggestions to help individuals Refer individuals for credit counselling 8.25 One respondent suggested that FIs should refer borrowers who are more than 60 days past due for credit counselling first, instead of issuing summons and charging borrower legal fees We encourage FIs to work with borrowers to develop repayment solutions before taking legal action and advising them of the availability of credit counselling where appropriate. Borrowers should also approach their lenders as early as possible when they face difficulties repaying existing debt. 25

26 Setting maximum interest/ fees/ charges and freezing interest 8.27 Two respondents suggested setting ceilings on fees/charges. One of them also suggested freezing interest on debts that are less than $10, Pricing decisions are best left to market forces. Imposing a ceiling may distort credit allocation or result in credit exclusion. The imposition of certain fees and charges encourage prompt payment and discourage individuals from taking too much debt. Proposal H: Disallow further amounts to be charged to unsecured credit cards, charge cards and unsecured credit facilities of individuals whose interest bearing balances with the FI are more than 2 months income for 6 consecutive months or more. Industry-wide Aggregate Cap Replacing the proposal with an industry-wide aggregate cap on outstanding balances 9.1 Several respondents opined that borrowers with outstanding balances exceeding 2 months income may still be able to service their debt without difficulty. Other respondents pointed out that the proposal, which imposed limits on a per-fi level, did not totally block individuals from obtaining more credit as they could still obtain credit from other FIs if the outstanding balances in the past 6 months with other FIs were less than two months income. Several respondents suggested that an industry-wide cap on unsecured borrowing would be a more effective way of controlling an individual s indebtedness. 9.2 MAS agrees that an industry-wide cap on unsecured borrowing is a more holistic way to manage individuals total indebtedness and a more 26

27 effective way to manage the debts of individuals borrowing from multiple unsecured credit lines. MAS will therefore replace the original proposal with a cap of 12 months income on an individual s total interest-bearing outstanding unsecured debt, aggregated across FIs. 9.3 To illustrate, under the original proposal, a person who owes debts amounting to 2 months income to 6 FIs each may still be able to continue charging amounts to cards issued by other FIs (where the credit usage is below 2 months income for the past 6 months). However, with an industry-wide cap, the individual will not be able to do so as his aggregate debt levels would have exceeded 12 months of his income. 9.4 The cap is set at 12 months income for a start given that this is the first time that such an industry-wide aggregate cap is being introduced. This allows borrowers and FIs time to adjust to the new rule and is not intended to be representative of a prudent level of unsecured debt. MAS will closely monitor the situation and lower the limit if necessary. 9.5 MAS will also allow a grace period of 90 days so that only borrowers whose aggregate unsecured debt exceed 12 months income, for 90 days or more, will have their unsecured credit/charge cards and unsecured credit facilities suspended. This is to allow borrowers who travel frequently, or who inadvertently omit to pay their bills, time to contact their FIs and make the necessary payments. 9.6 In addition, FIs will be given the discretion to lift the suspension and issue new facilities to refinance borrowers existing debts 10 with other FIs; in doing so, FIs will also be permitted to exceed the regulatory credit limits of 4 months income (for individuals with annual incomes of at least $30,000) and 2 months income (for individuals with annual incomes of below $30,000). This will enable borrowers to transfer balances from one FI to another FI and benefit from refinancing debt at lower interest rates. 10 FIs can lift the suspension only for debt transferred from other FIs, but will not be allowed to extend further fresh credit. 27

28 9.7 To give borrowers time to re-evaluate and pay down their existing borrowings to within the limit, MAS will be allowing a transition period of 18 months before the limit comes into effect. 11 In addition, MAS is studying the need for a further extension of the time period for borrowers whose current aggregate unsecured debt already significantly exceed 12 months income. Nevertheless, borrowers with high levels of unsecured debt should take immediate steps to reduce their debt levels. 9.8 In recognition that individuals with greater financial means do not require the same level of protection under Government s social policy rules, FIs will be given the discretion to continue to extend credit to individuals whose unsecured borrowings aggregated across FIs exceed 12 months income if the borrower s annual income is at least $120,000 or he has total net personal assets exceeding $2m. This is in line with the current treatment of individuals who are exempted from the regulatory maximum credit limit. Scope of Proposal Whether unsecured term loans can be excluded 9.9 Several respondents suggested that term loans be excluded, as they are needs-based products with disciplined monthly repayment Term loans should not be excluded as they are still considered debt. Needs-based loans set out in paragraphs 9(c)-(k) of MAS Notice 635 Unsecured Credit Facilities to Individuals will be exempted from the calculation of aggregate debt for the purposes of this proposal. As a concession, borrowers with needs for loans set out in paragraphs 9(c)-(k) of MAS Notice 635 Unsecured Credit Facilities to Individuals, will still be permitted to obtain an unsecured loan, even if their total interest-bearing 11 MAS proposes for the rule to take effect 18 months from the time the relevant amended Regulations and Notices are issued. To allow time for all stakeholders to be operationally ready, a staggered implementation timeframe will also be applied to the rest of the proposals. 28

29 outstanding unsecured debt, aggregated across FIs, exceed 12 months of their income for 90 days or more. Whether balance transfers and instalment plans are included 9.11 One respondent asked whether unsecured credit facilities include balance transfers and instalment loans or refer only to unsecured credit facilities at 24% interest Interest-bearing balance transfers and instalment loans (except those specified under paragraphs 9(c)-(k) of MAS Notice 635 Unsecured Credit Facilities to Individuals ) should be included in an individual s outstanding balance. The proposal does not only apply to facilities which accrue interest at 24%. Whether micro-credit cards and secured credit cards are caught by this proposal 9.13 One respondent noted that footnote 21 of the consultation paper stated that the proposal does not apply to individuals who hold solely microcredit cards but footnote 23 stated that FIs are not allowed to issue new microcredit cards and asked if there is a contradiction. One respondent asked if individuals caught by the proposal will be allowed to obtain new micro-credit cards and secured credit cards from other FIs. Another respondent suggested that the proposal should not apply to secured cards Footnote 21 refers to individuals who hold only micro-credit cards and no other cards from the FI. If such individuals aggregate balances exceed 12 months of their income, there is no need to suspend the card. For individuals who hold cards other than micro-credit cards, FIs will not be allowed to issue any credit cards, including micro-credit cards, to these individuals when their 29

30 aggregate balances exceed 12 months of their income The proposal does not require amounts outstanding on secured cards to be aggregated: only balances on unsecured credit cards, unsecured charge cards and unsecured credit facilities (other than those stated in paragraphs 9(c)-(k) of MAS Notice 635 Unsecured Credit Facilities to Individuals ) have to be aggregated. FIs may continue to issue secured credit cards to individuals whose total interest-bearing outstanding unsecured amount aggregated across FIs exceed 12 months income for 90 days or more. Suspension Suspending recurring payments 9.16 One respondent suggested that recurring payments (e.g. on utilities bills) should not be stopped as terminating such payments may cause additional stress to the individual and his family Credit cards and unsecured credit facilities need to be suspended only if the borrower has exceeded the cap for 90 days or more. FIs should proactively contact customers at risk of suspension during the grace period of 90 days and advise them of the consequences of exceeding the cap for 90 days or more. Whether a borrower who has reached the cap is allowed to charge further amounts if he has available credit limit 9.18 One respondent asked if a borrower who has reached the aggregate cap is allowed to continuing drawing on his credit line if he has not fully utilised his credit limit with a particular FI A borrower who has exceeded the aggregate cap for 90 days or more is 30

31 not allowed to continuing drawing on his credit lines even if he has not fully utilised the credit limit previously granted to him by that FI. Whether FIs can continue to bill transactions that took place before the customer s accounts are suspended 9.20 A few respondents sought confirmation that FIs can continue to bill to customers transactions entered (e.g. instalment amounts, transactions posted late by merchants, transactions entered but not yet billed) before the customers accounts are suspended Amounts charged prior to the customer being suspended can still be billed to the customers. Consequences of suspending Borrowers may turn to illegal moneylenders 9.22 Two respondents highlighted that in the absence of financing support from FIs, individuals may be forced to seek financing from unregulated sources The proposal has been designed to limit hardship to individuals. Firstly, credit cards and unsecured credit facilities need to be suspended only if the borrower has exceeded the aggregate cap for 90 days or more. FIs should proactively contact customers at risk of suspension during the grace period of 90 days and advise them of the consequences of exceeding the cap for 90 days or more. Secondly, to provide time for existing borrowers to adjust to the new measures, MAS is allowing a long transition timeline of 18 months before the implementation of this proposal. Thirdly, the proposal does not require borrowers to make immediate repayment of the loans; FIs are allowed to reinstate access when the borrower reduces the outstanding balances to 31

32 below 12 months income. Lastly, borrowers will be allowed to transfer existing debt from one FI to another FI to give them the flexibility to manage interest costs through re-financing. 12 Restricting market competition 9.24 One respondent felt that restricting other FIs from issuing new credit facilities to individuals caught by the proposal restricts market competition Individuals caught by the proposal have already incurred significant debt and should not be extended more credit. We will, however, allow refinancing of existing debt. Thus, FIs which may not have relationships with the individual can still service the individual if they are able to offer a better value proposition to help the individual get out of debt. Reinstatement Whether individuals have to pay off all outstanding balances before accounts can be reinstated 9.26 One respondent asked if individuals have to pay off all outstanding balances before accounts can be reinstated; if so, they may turn to illegal moneylenders FIs are allowed to reinstate access when the borrower reduces the outstanding balances to below 12 months income; there is no requirement for all balances to be fully paid off. In addition to checking that the outstanding balances are below the aggregate cap, FIs have to obtain updated income documents and conduct credit bureau checks before reinstating the accounts: see paragraph 8.20 for details. 12 However, borrowers will not be permitted to obtain additional credit beyond the debt transferred. 32