Debt collectors form body to raise industry integrity

Singapore

WITH stricter rules forthcoming on unsecured lending by both banks and moneylenders in Singapore, a new association of debt collectors has emerged.

Having this form of shadow banking up against the light comes as an estimated 40,000 Singaporeans who borrowed more than a year's income through unsecured loans from banks will soon have their credit lines cut until they have their debts reduced.

Ten credit and debt collection firms here have formed the industry's first professional organisation, the Credit Collection Association of Singapore (CCAS), the association said in a media statement on Wednesday.

CCAS aims to work with regulators to represent the industry's views and to operate as a mediation centre, resolving conflict that may arise between debtors and its members.

It will also create a code of conduct, as well as training programmes and accreditation, said CCAS, adding that it wants to raise "the level of integrity" of the industry.

"With low barriers to entry, it is easy for new players to enter the market. Without proper training in negotiation and dispute resolution, these companies may resort to tactics of intimidation," CCAS president Chen Yew Nah, who also runs debt collection agency Datapool (S), said in the statement.

"Our message to companies that use collection firms is simple: you can either choose a cowboy, or you can choose a member of our association."

The Ministry of Law is, meanwhile, working on tighter rules on moneylending. Such changes could include a reduction in the highest possible rate that is charged by moneylenders - which now stands at 20 per cent in effective interest rate terms (taking the compounded effect into account) for unsecured loans.

There are also plans to set up a central credit bureau that will track and limit the total amount of unsecured credit a person can borrow from moneylenders.

This is similar to rules being put in place for banks by the Monetary Authority of Singapore (MAS) - an important coordination given fears that debtors who are cut off from bank loans may now turn to moneylenders, Credit Counselling Singapore president Kuo How Nam told BT.

From June next year, banks cannot grant more unsecured credit to a borrower if his total unsecured debt exceeds his annual income for three straight months.

MAS said late last month that 3 per cent of unsecured credit borrowers' debts were more than annual incomes. Data from Credit Bureau (Singapore) showed that 1.44 million people held at least one credit card as at the end of last year.

In Singapore, a person who earns more than S$30,000 a year can be offered an unsecured loan of about four times his monthly salary. The bank may offer more to a person who earns at least S$120,000 a year.