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MAS clarifies new rules on unsecured lending

The Monetary Authority of Singapore is clarifying how some of the tighter rules on unsecured lending will be implemented, after concerns were raised.

SINGAPORE: Credit cards and personal credit lines, even education and renovation loans -- are just some examples of unsecured lending. Stricter rules kicked in for this sort of lending earlier this month, and ahead of the rollout of another set of measures, the Monetary Authority of Singapore (MAS) on Friday (June 6) clarified how some of these rules would be implemented.

First, banks and financial institutions will have to run checks on borrowers. This means they will be able to find out how much money you owe to other banks in Singapore. Second, credit limits may only be raised with your written consent. 

Industry observers said people are more careful about applying for credit cards. Mr Vinod Nair, the CEO of MoneySmart.sg said: "Previously, I think people would just frivolously sign up for credit cards because there was a free gift, or a special promotion at that point in time. But with the new rules in place, I think people have become a lot more prudent, and are really taking up more products that match their lifestyle needs, and taking up fewer and fewer credit cards. So previously, where they would have 12 cards in their wallet, they would have three or four now, but these three or four (cards) are really what they would use frequently."

Another raft of rules is set to kick in next year. If you fail to repay your credit card bills for 60 days or more, you will not be able to apply for more credit.

In addition, banks and other financial institutions will not be able to extend credit to you if your total outstanding debt across all lenders is more than 12 times your monthly income.

As the new rules start to take effect, the MAS has clarified that there is no need for indebted consumers assessed to have borrowed beyond their means to make immediate debt repayments.

Mr Kuo How Nam, President of Credit Counselling Singapore said: "Obviously, they can't pay back in full, immediately. Now what will happen is that there will be some flexibility, which is allowed by the MAS, for the banks and the borrowers to actually reach an agreement on the terms of restructuring - paying back over a number of years."

Credit Counselling said there are 30,000 individuals who may have over-borrowed. These people will be hit hard when the new rules on unsecured lending kick in next June. However, Credit Counselling also said that it has not seen a significant spike in the number of people seeking help.

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