Growing risks of cash-advance cards worrying

Concerns over financial risks involved in issuing cash-advance cards have some banking industry officials questioning promotions of the plastic money, industry professionals said yesterday.

Macoto Bank (誠泰銀行), one of the nation's major cash-advance card issuers, confirmed that earlier this year the bank has decided to gradually pull out of the sector it entered in 2001, but remained mum about the strategy change -- until yesterday.

"We've suspended all commercials designated to prompt cash-advance services for a couple of months," said Chang Jih-cheng (張日政), a marketing manager of Macoto Bank.

While Macoto still offers the service, it will do so very low-profile, he said. The decision was made after a company evaluation showed a rise in bad loans coming from cash-advance services.

The company's cash-advance card default rate is about 2 percent, Chang said.

The cash-advance cards allow users to borrow a set amount of money at up to a 18.25 percent annual interest -- although rates vary among banks -- and at a cost of NT$100 per transaction

With an increasing number of banks lending money to people in need of emergency loans, TV stations are flush with ads portraying cash-advance cards as popular and easy to obtain. Several companies say card applications can be processed in 30 minutes.

As of the first quarter of this year, 26 domestic banks have collectively issued 2.41 million cash-advance cards, with Cosmos Bank (萬泰銀行) leading the market with 1.1 million card users.

One industry watcher criticized the cash-advance card as a risky financial product.

"It's nearly impossible for banks to conduct a thoughtful credit investigation in 30 minutes," said Norman Yin (殷乃平), a finance professor at National Chengchi University.

The risk of bad loans is high, he said, noting that some banks in South Korea and Indonesia reportedly went out of business due to high credit card and cash-advance card defaults.

Fubon Commercial Bank (富邦銀行) is not keen to jump on the cash-advance card bandwagon.

"We do not think it's ethical to encourage the public, especially young people without stable incomes, to get loans," said Chen Yi-fen (陳怡芬), a Fubon manager.

The Bureau of Monetary Affairs has decided to issue guidelines for card companies. The rules, which are expected to come into force by the end of next month, will prohibit banks from issuing cards to people under the age of 20.

Students and people aged between 20 and 25 who have no regular income will not be able to obtain more than two cash cards, with a NT$20,000 limit per card.

As of February, the nation's cash-advance loans hit NT$91.5 billion, accounting for 2.32 percent of the nation's NT$3.941 trillion in consumer loans.