MAS proposals could help prevent debt cases like these...

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#1
Methinks there are now more cases like these, which is why MAS started to think about clamping down. Note the words in BOLD.

The Straits Times
www.straitstimes.com
Published on Dec 24, 2012
MAS proposals could help prevent debt cases like these...


By magdalen ng and yasmine yahya

EVEN while trying to pay off her credit card debt of $150,000, she would still get calls from telemarketers asking her if she would like to apply for more credit cards.

"It's crazy," said the 50-year-old saleswoman, who declined to be named as she does not want her colleagues to know about her financial situation.

"Obviously the banks are not doing their due diligence. These were the same banks that I owed money to."

She strongly believes that the rule changes proposed by the Monetary Authority of Singapore (MAS) last Friday will help many consumers, especially those in the younger generation.

These proposals, aimed at lowering debt delinquency and discouraging consumers from overspending, call on banks here to conduct due diligence on the creditworthiness of a potential customer before issuing a credit card or charge card or granting a credit line to him.

If, for example, a consumer has not paid his debt with a bank for more than 60 days, the MAS suggested that other banks should not be allowed to issue new credit cards or unsecured loans to him until he pays off that initial debt.

"These days, it seems like money is so easy to come by. You just sign, and people are buying houses without realising that the interest rates can spike," the saleswoman said.

"When the crunch comes and you can't pay, you are going to be a dead duck. I wish such measures were put in place years ago."

The crunch for her came during the Asian financial crisis of 1997, when she lost her banking job and, as a result, had to service her mortgage by charging it to her 10 credit cards.

Eventually, the debt rolled and snowballed to $150,000. She approached Credit Counselling Singapore (CCS) in the early 2000s, which helped her organise her debt and come up with a structured repayment plan.

"CCS helped me to negotiate with all the banks, not to cancel the debt but to reduce the interest," she added. She paid off her debt in full a few months ago, after seven years.

Similarly, debt became a major problem for 30-year-old Mr Chua - who also asked not to be named - after he was retrenched from a well-paying sales job.

"I was quite a high-income earner, with an average monthly salary of about $10,000, so my credit limit was $40,000," he recalled.

Although he did not splurge on luxury goods or big-ticket items, he did not control his spending, he said. When he got married, for example, he spent a lot of money on a lavish wedding.

Mr Chua was also supporting his parents and, later, his wife.

Then, about two years ago, he was retrenched. He found another job, but it did not pay as much. Yet he still had to continue supporting his family.

"Most of my expenses were just basic necessities like groceries. But during months when I earned a low commission, I had to use my credit card to pay for these things," he said.

"I would usually pay off just the minimum sum on my credit card bill. If I earned a higher commission that month, then I would pay a bit more. But still, it wasn't enough and my debt kept growing."

When his debt ballooned to $40,000, he sought help from CCS.

"I realised it was affecting my whole family's quality of life, because the banks kept sending lawyers' letters and writs of summons. I realised this could not go on," he said.

CCS has helped Mr Chua negotiate with the banks for lower interest rates on his debt, and has helped him draw up a repayment plan. It will likely take three to four years for him to become debt-free.

"It's good that the Government is doing something to help prevent such things," he said.

"At the end of the day, the banks should be more responsible about how they evaluate the customer.

"Do they really need to give you a credit limit that is four times your income? I don't think most people would be able to repay that amount."
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
Credit card is just one of the means.
I keep receiving blank cheques from banks, enticing me to encash them. Naturally, these cheques landed in the trash bins, after shredding. But someone in need of help with cashflow may just deposit the cheques.
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#3
Two weeks ago I received a call from one of our local banks, offering me an unsecured loan for 3 months at 0% interest and NO admin fee! This sounds too good to be true but I was assured that it is real. So I took it up, it's free money anyway. But what to do with the money, I have no plan yet, take first and think later. For sure I will return it before the loan expiry date.

Banks are really aggressive for business, consumers must be viligant. Policies and rules can be tighten, but individual spending habits and money management must also be prudent.
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#4
(24-12-2012, 12:01 PM)Ben Wrote: Two weeks ago I received a call from one of our local banks, offering me an unsecured loan for 3 months at 0% interest and NO admin fee! This sounds too good to be true but I was assured that it is real. So I took it up, it's free money anyway. But what to do with the money, I have no plan yet, take first and think later. For sure I will return it before the loan expiry date.

Banks are really aggressive for business, consumers must be viligant. Policies and rules can be tighten, but individual spending habits and money management must also be prudent.

Good Ben! Take the funds and deposit into CIMB Account for 0.8% interest for 3 months. It's an almost risk-free spread you are earning.... Tongue

But seriously, I agree we must all be vigilant. Banks are ruthless for business and they won't care if you are bankrupt or down and out. Vitamin M is what keeps them alive. SUch is our capitalist world.....haiz.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#5
(24-12-2012, 12:01 PM)Ben Wrote: Two weeks ago I received a call from one of our local banks, offering me an unsecured loan for 3 months at 0% interest and NO admin fee! This sounds too good to be true but I was assured that it is real. So I took it up, it's free money anyway. But what to do with the money, I have no plan yet, take first and think later. For sure I will return it before the loan expiry date.

Banks are really aggressive for business, consumers must be viligant. Policies and rules can be tighten, but individual spending habits and money management must also be prudent.

I was very surprised too. First time I've actually seen really interest free money.

I'm wondering why they need to "window dress" up their outstanding consumer balance for year end.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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#6
The bank probably bet that you will spend and continue the loan. For me 3 months are too short and a hassle. The process and opportunity cost to extract some gains from it may not be worth it.

Just my Diary
corylogics.blogspot.com/


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#7
I'm puzzled.

Is MAS trying to protect the individual or the banks? How do you teach your kid to walk? By ensuring that the kid does not fall down or to pick himself up when he falls?

Take the lady quoted in the article. Would she have enjoyed a better quality of life had she declared bankruptcy? IMHO, most people (unless it affects their jobs) should seriously consider bankruptcy rather than feed the banks further.

Let's take an example. If a person earns 7k a month and owes 150k @ interest rate of 24%. After deducting CPF, he is left with 6k. Even if he can pony up 5k a month to repay the bank (leaving himself with just 1k a month for taxes and living expenses), it will take him almost 5 years to discharge the loan. In that 5 years, he would have paid the banks >230k including >80k in interest charges.

On the other hand, if he decided to petition for his own bankruptcy, he need only pay the OA <2k. I believe that he can easily justify expenses for the family for around 5k (including allowance for parents, etc.) leaving only 1k a month for creditors. After 3-5 yrs later, he can petition to be discharged from bankruptcy. In that 5 yrs, he would have paid the banks <50k, leaving his folks (and himself) a much better quality of life!
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#8
(24-12-2012, 01:26 PM)corydorus Wrote: The bank probably bet that you will spend and continue the loan. For me 3 months are too short and a hassle. The process and opportunity cost to extract some gains from it may not be worth it.

You can try checking other banks for the same offer or similar. These 3 months can be re-rolled into another bank's 3 months and so on and so forth, so you have a longer time period to make use of this interest-free money. Great source of OPM Smile
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