Limit on credit cards

PETALING JAYA (Sept 19, 2010): In a bid to keep household debt under control, Bank Negara Malaysia will impose new guidelines to make it harder for consumers to obtain and own credit cards.

A senior bank official told theSun that the new rules, to be unveiled in Budget 2011, will restrict the number of credit cards per consumer and allow only those with a yearly income above RM24,000 eligible to own a credit card.

“We are looking at two main aspects -- increasing the income level required for a credit card and restricting the number of credit cards per consumer,” said the official.

TheSun learnt that under the new rule, a consumer can only own credit cards from two banks of their choice while the minimum income limit to qualify for a credit card will be increased from the current RM18,000 per annum.

“This will tighten credit card spending as many in the lower income category and below the ages of 30 have been blacklisted and declared bankrupt due to increasing debts,” said the official.
“The move will also prevent consumers from holding a string of credit cards and cap their spending limit.

“The rationale is simple. If you are in the low income category, you should not own several credit cards and spend more than what you can afford. It is becoming increasingly easy for fresh graduates and the newly-employed to obtain credit cards.

"Most of them, upon obtaining their card, go on spending spree without taking into account the interest rates and late repayment charges," said the official.

"Over several months, the amount snowballs and the card holder is unable to service his debt, resulting in blacklisting and bankruptcy when the debts cross the RM30,000 mark.

"The new rules will curb this kind of practices by card holders, especially those below 30 years," said the official.

BNM is in the last stages of finalising details with banks and the relevant authorities before the rules become effective. It is learnt that the new rules when Budget 2011 is tabled in Parliament next month.

As of July, there are 7.9 million principal cards in circulation nationwide with outstanding balances for three months and below of RM1.96 billion.

Outstanding balances for six months and above stood at RM69.5 million.

Based on data from Bank Negara, there are 218,561bankruptcy cases as of June, out of which 4,417 were for failure to settle credit card debts.

Last year, 407 credit card holders were declared bankrupt.

In Budget 2010 unveiled in October last year, the government imposed an annual service tax of RM50 for every principal credit card and RM25 for every supplementary card with effect from January.

Following the move, there was a 18% drop in principal cards in circulation and a 17% decline in supplementary cards.

At present, credit card limits are set at a bank’s discretion with first time applicants usually given limits of 2.5 to three times their monthly income.

It is easy to qualify for a credit card, with some banks even providing pre-approved credit cards for consumers, based on their basic salary and credit ratings. Some banks offer credit cards to consumers immediately after they take up a hire-purchase car loan. -- theSun