Easy Credit Ends, Rules Incoming

In recent years, household debt in Malaysia has remained persistently high, hovering above 80 percent of GDP. A significant chunk of this debt is driven by personal loans, hire-purchase agreements, and increasingly, unsecured credit like credit cards. Within this matrix, youth borrowing has emerged as an alarming trend. Despite having limited job security and modest starting salaries, many young Malaysians are being offered generous credit limits with minimal scrutiny.

Policymakers are taking note. Amid growing worries about rising delinquency rates among under-30 borrowers, Malaysia’s banking regulators are said to be evaluating the current framework that governs credit card issuance to graduates. While the current policy mandates a minimum monthly income threshold for first-time credit card applicants, enforcement and loopholes leave room for interpretation.

Some financial institutions reportedly bypass the rigorous assessment phase altogether, particularly when engaging in promotional tie-ups with universities or fresh-recruiter employers. These partnerships allow banks to access a large pool of eager applicants with predictable income, even if it is marginal.

The notion of regulating lending more stringently for recent graduates is not without precedent. In several countries, tiered lending is adopted as a risk-mitigation strategy, where credit card limits are linked not only to income levels but also to borrower history and age. A staggered approach—beginning with smaller limits and scaling up based on repayment performance—has been tabled as a possible direction for Malaysian regulators. Critics argue, however, that the issue is not only regulatory but cultural. In a society where financial success is often measured by visible consumption, the pressure to spend beyond one’s means is quietly but powerfully embedded.

Internally, several banks are reviewing their risk models. Some institutions are beginning to adopt behavioural metrics in assessing the viability of a young applicant—not just their payslip, but their past digital payment behaviour, loan history if any, and even social media cues. Still, the industry is largely sales-driven, and front-end executives are incentivised to onboard new customers quickly, which often leads to lapses in due diligence.

The proposal for new rules reportedly includes a mandatory cooling-off period post-employment before a credit card can be issued, a lower maximum credit limit for first-time cardholders under 30, and more robust financial education requirements tied to card approvals. Critics from the financial services industry argue that over-regulation could drive youth to informal lending or fintech platforms with less oversight. But consumer protection groups counter this by pointing to the growing debt burden shouldered by Malaysia’s youngest workforce segment.

Stories of young Malaysians finding themselves ensnared in a debt cycle shortly after graduation are no longer rare. Many start with a single card. Encouraged by cashback rewards, promotional air miles, or peer comparisons, their credit utilisation quickly reaches unsustainable levels. Minimum payments delay the reckoning, but the compound interest soon catches up.

While some banks have introduced modest reforms—such as reducing pre-approved credit limits and conducting online financial readiness assessments before activating a card—systemic change is still needed. The lack of a centralised reporting mechanism for youth credit utilisation, combined with inconsistent data-sharing across agencies, makes it difficult to design targeted interventions.

The issue is further compounded by the rapid growth of digital-first banks and buy-now-pay-later platforms. These services often operate outside traditional credit frameworks and appeal to a tech-savvy youth demographic already used to instant gratification. With regulators racing to catch up, the risks of long-term financial instability loom large.