Soon, Plastic for the People

January 23, 2007

Banking Act changes give lower-income access to unregulated, limited credit

Some people have Gold, others have Platinum, and a few have Titanium. But the average- to lower-income Singaporean will soon have $500.

In credit access, that is.

There may not be a name for it yet, but cards granting up to $500 in credit could soon line the pockets of Singaporeans who do not qualify for existing credit cards.

The way was paved for this new kind of credit product when Parliament approved changes to the Banking Act yesterday.

The new laws exempt cards with small credit amounts from regulation, and the Monetary Authority of Singapore (MAS) has set the ceiling at $500. Also exempt are cards of any credit value issued by individual vendors. For example, Isetan and Courts issue cards to their customers for purchases in a deferred payment scheme.

"This allows flexibility in payments for small-ticket items without raising substantial concerns about Singaporeans spending beyond their means," MAS deputy chairman Lim Hng Kiang told MPs.

However, the exemptions set off some alarm bells in the House yesterday.

MP Inderjit Singh (Ang Mo Kio GRC), one of two MPs to speak on the changes, was concerned that the regulations did not cover enough ground. Ready credit loans, for example, were not part of the scope of the amended Act. Mr Singh pointed to the debt cycle that many credit-card holders get into when they use one card to pay off the debts of another card.

When he heard of the changes, financial advisor Leong Sze Hian also thought the rules should be tighter. "Someone can go to one bank and get $500 in credit, go to another bank for another $500, and 10 banks later, it's not a small amount anymore. I should go and buy bank stocks tomorrow," he said.

Indeed, the banks are considering the prospects of a $500 credit card.

"We'll study the feasibility of this new market segment. We need more details first. For example, is there a minimum income requirement?" DBS spokesperson Jenny Lee told Today.

The product could thrive on volume, which means the more Singaporeans who use these cards, the better for the banks.

"Lower amounts mean less exposure for the creditor," said Mr Leong.

In response to Mr Singh's speech in Parliament, Mr Lim said the law needed to strike a balance, so that cash-strapped Singaporeans did not run to loan sharks for money - a point which Mr Singh conceded, although he told Today the situation needs to be monitored so that it does not go the way of the credit card debt spiral.

Otherwise, the changes to the regulation of credit were tightened under the Act to empower MAS to prohibit entities that have not been approved to issue credit cards here from soliciting or accepting card applications in Singapore. These include foreign credit card companies not based in Singapore, for example. Third parties cannot act on their behalf, either.

Under the new laws, MAS will be empowered to inspect the operations of approved card issuers for compliance with MAS' rules pertaining to credit card operations. "The wide-ranging prohibition on solicitation supports the Government's social policy objectives of discouraging individuals from spending beyond their means," said Mr Lim.