Published February 26, 2009

Banks to muscle in on GE Money's turf

Lower income limits for unsecured bank loans; GE falls under Moneylenders Act

By SIOW LI SEN

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(SINGAPORE) Easy money no more from March 1. GE Money which pioneered lending money to low-income borrowers on a mass scale has been brought under the new Moneylenders Act which restricts loans to no more than two times monthly income.

Related links: Click here for MAS' news release Ministry of Law's news release

GE's popular EzyCash, sold in 24 SingPost outlets to those with a minimum annual income of $20,000, offered unsecured loans up to four times monthly income.

Banks however are cheering as rules have now been eased to let them muscle into GE Money's space and they can sell unsecured loans to individuals with a lower annual income of $20,000.

Currently banks can only offer unsecured credit to those with a minimum annual income of $30,000.

Said Wong Chung Yee, OCBC Bank's head of consumer unsecured lending: 'It opens up opportunities for banks to help individuals who previously had limited access to unsecured facilities.'

Under the new act, individuals with an annual income of between $20,000 and $30,000 can only avail of unsecured credit of up to two times their monthly income.

For those with an annual income of less than $20,000, lenders can only extend an unsecured loan of not more than $3,000, with the interest capped at 18 per cent.

There is currently no cap on small unsecured loans offered by moneylenders licensed by the Ministry of Law (MinLaw).

But the new rules provide exclusions for certain types of loans such as loans for medical treatment, study and renovation.

The changes to the act, which was enacted 50 years ago, were passed by Parliament last November and captured GE Money which now has to be licensed. GE Money has been operating under an exemption.

MinLaw yesterday said the new act clarifies the moneylending activities to be licensed, modernises moneylending operations and tightens the regulatory framework.

GE Money yesterday said it has obtained its moneylender licence, in anticipation of the new rules.

'We don't foresee much impact on our business as we have been serving this segment for a number years. Through our prudent risk management, we have helped many previously under-served Singaporeans enter the formal credit system and given them a chance to build their credit histories through prudent and responsible borrowing,' said Rahul Gupta, chief executive, GE Money Singapore.

GE Money has over 150,000 customers which includes autoloans. Interest rates on its unsecured loans are between 14 and 22 per cent.

Banks, while given more room to lend money to the lower income groups, have also had to tighten up their act with greater explicit disclosure on effective interest rates and all fees, including penalties for late payment.

They are also no longer allowed to send unsolicited offers of unsecured credit facilities to customers, said the Monetary Authority of Singapore yesterday. This restriction on unsolicited offers for credit cards is already in place.

Under new rules for unsecured credit effective March 1, lenders have to conduct comprehensive checks with the credit bureau before granting each new credit card, charge card or unsecured credit loan.

For borrowers with a minimum annual income of less than $30,000, banks can now extend unsecured credit facilities to them, but limited to two times monthly income and they are not eligible for credit cards.