Mon, May 02, 2005 - Page 11 News List

Banks caution consumers on cash-card abuse

`LIQUIDITY SQUEEZE' In the wake of cash-card debts, the finance industry is forced to restructure its services

By Jackie Lin  /  STAFF REPORTER

A electronic bulletin board mounted on the corner of Zhongxiao East Road and Keelung Road shows a cash-card commercial by Hwa Nan Commercial Bank. Starting this month, all the TV, movie commercials and print advertisements promoting cash-cards are required to have a warning saying that the product must be used carefully.

PHOTO: CHU PEI-HSIUNG, TAIPEI TIMES

Fierce competition in the fast-growing but controversial cash-advance card market has seen the first player quitting the game last month, but industry veterans said that it is unlikely to be an isolated case and more withdrawals of banks from this aspect of consumer banking are expected in the future.

Less than a year after it had joined the seemingly lucrative cash-card race, the Taipei-based Bank of Overseas Chinese (華僑銀行) decided to dispose of all its cash-card customers in March.

But actually the lender, 11.4 percent owned by the government, ceased issuing new cash cards to customers in April last year, as a way to improve its bad loan ratio.

The bank formally dropped out of the market last month, reducing the number of cash-card issuers in the nation down from 34 to 33, the Financial Supervisory Commission announced at a press conference last week.

The bank still had over 3,000 effective cash cards in February and the number was cut down to zero in March, according to the commission's Bureau of Monetary Affairs data.

Jong Huey-jen (鍾慧貞), the bureau's deputy director general, said the Bank of Overseas Chinese has helped these customers transfer to small-amount loan programs or other consumer banking projects, paving the way for its formal exit out of the white-hot race.

Cash cards, which first appeared in the Taiwan market after Cosmos Bank Taiwan (萬泰銀行) introduced its George & Mary card in 1999, allow holders to borrow cash on an unsecured basis via automatic teller machines.

As of the end of March, 3.81 million cash cards were issued in Taiwan, with an outstanding loan figure of about NT$270.5 billion, according to the bureau.

The three largest cash-card issuing banks control more than 50 percent of the market: Cosmos Bank, Taishin International Bank (台新銀行) and Chinatrust Commercial Bank (中國信託).

Whether the Bank of Overseas Chinese's exit from the cash-card business will cool down the feverish development in the nation's consumer finance industry awaits observation.

But financial regulators are placing more restrictions on cash-card issuers, hoping to regulate the booming market and protect consumers' rights and interests.

In the wake of the abuse of cash cards by young users, the regulators have been increasingly pressuring local lenders, demanding they equip themselves with sophisticated monitoring and collection systems, as well as comprehensive credit policies to control credit risk.

The latest regulations passed by the commission on Thursday stipulate that, starting this month, all TV and movie commercials and print advertisements promoting cash cards must have warning phrases saying that this consumer product must be used carefully.

Lu Daung-yen (呂東英), vice chairman of the Financial Supervisory Commission, said if banks fail to abide by the standards, the maximum punishment is to suspend their cash-card operations.

The regulations also raise card applicants' eligibility requirements, demanding that those who already own five cash cards present salary or financial statements when applying for an additional one.

Card issuers are also banned from giving away gifts as part of their marketing strategy, the commission said.

The government's worries apparently are not baseless, as the eligibility requirements for cash cards are significantly lower than those for other types of consumer debt such as credit cards, with some lenders even issuing cards to prospective applicants with no steady income.

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