Cash-advance cards could be the next Pandora's Box

The recent automated teller machine card frauds exposed the weakness in risk control management among banks in the nation, but more problems will occur over cash-advance cards if the issuance of such cards is not improved, industry experts warned yesterday.

"The poor risk-control management in banks has damaged consumers' interests, and banks will eat their own bitter fruit if they fail to strengthen security mechanisms," Cheng Jen-hung (程仁宏), secretary-general of the Consumers' Foundation (消基會), said yesterday.

Glut of credit

As of March, there were 26 banks issuing 2.41 million cash-advance cards in Taiwan with total outstanding loans of NT$91.5 billion, according to the Bureau of Monetary Affairs' latest statistics.

The cash-advance cards allow cardholders to borrow small amounts of money at annual interest rates of up to a 18.25 percent in addition to handling fees.

Cardholders don't have to provide collateral or guarantees, nor pay application fees, credit insurance fees or annual fees when applying for the card.

It is this simple application process that creates problems. The loose card-issuing process and oversight are a product of the fierce competition among the nation's banks.

For example, one bank promises that it can issue the cards within 30 minutes, which a financial expert said is not enough time to conduct a thorough credit investigation.

Because of such lax practices, First Commercial Bank (第一銀行) was ordered to suspend the processing of new cash-card applications by the Ministry of Finance on Oct. 4, after a cash-card holder with a credit line of NT$25,000 was able to withdraw about NT$33 million with his card.

Other problems emerged when banks found that some cards were issued based on fake or stolen IDs and documents.

The abuse of the cash-advance cards by young users also forced the ministry in March to demand that students be allowed to hold only one card with a maximum credit line of NT$20,000. The ministry said this safeguard was to compensate for the students' immature financial management skills.

Cosmos Bank (萬泰銀行), which leads the market with 1.2 million holders of its "George & Mary" cash-advance card, said it has confidence in its risk-control management practices.

"We have meticulous card-issuing procedures, and the amount of bad loans in the sector is within our control," said company spokesperson Shih Kun-liang (施坤良).

If a valid ID and related financial statements are presented when applying for the card, it will take only 30 minutes to process the application, Shih said.

Another cash-advance card issuer, Union Bank of Taiwan (聯邦銀行), said it usually takes three days to complete the issuing process.

"I think compared to other competitors, we have more stringent measures in place to monitor the service," said Lin Mei-lan (林梅蘭), an division chief at the bank's cash-advance card department. "We need to see the applicants in person and make phone calls to confirm their occupations and companies."

However, risk derived from bad loans is still high, which led Macoto Bank (誠泰銀行) to decide to gradually pull out of the market earlier this year.

Oversight needed

"I think there should be laws to regulate this sector to explicitly stipulate the obligation of banks and consumers," Cheng of the Consumers Foundation said.

Chiang Yeong-yuh (江永裕), a banking professor at National Chengchi University, said that there was an urgent need for a legal basis to regulate the administering of the cards.