Thu, Dec 15, 2005 - Page 10 News List

Bankers, lawmakers still divided on card debt aid

DROWNING IN DEBT Unhappy with a legislative bid to cap credit-card interest rates, financial institutions have come up with some ideas to help `card slaves'

By Jackie Lin  /  STAFF REPORTER

Banking representatives and lawmakers reached little consensus yesterday about how to help those heavily in debt get out of their financial straits quickly, although a cap on the interest rates for consumer loans remains a possibility.

On the eve of a Bankers Association of the ROC (銀行公會) board meeting to discuss repayment plans, the legislature's Finance Committee sat down yesterday morning with the association members, in hopes of hammering out bail-out measures to rescue "card slaves."

"Card slaves" is a term coined by Chinese-language newspapers to describe consumers whose skyrocking credit or cash-advance card debt has left them unable to make their payments.

The legislature's proposal to cap the spread between the savings rate and the revolving rate of credit/cash card loans at less than 10 percent was shelved last Friday in the face of mounting criticism.

Financial stocks also dropped last week, due in part to the controversy over the proposal.

Analysts have warned that if such a proposal were to be passed, foreign investors would pull out of the market, resulting in a credit crisis and force people to turn to loan sharks for money.

As a token concession, on Tuesday night the association drafted preliminary measures to offer cardholders lower interest rates if their debts exceed certain levels. This plan will be put to the association's board today.

Under the proposed bail-out scheme, debtors whose unsecured loans are at least 25 times their monthly salaries but who have a good record of making payments could be eligible for a 24 to 80-month installment program with interest rates of between 3.88 percent and 12.88 percent.

If a cardholder has failed to make payments for more than 30 days and his or her debt burden ratio (DBR) is more than 17 times their salary, they could be offered a new installment program for a maximum of 80 months with zero interest.

The association also proposed tightening the application criteria for new credit or cash cards, if the applicant's debt exceeds his or her monthly income by 22 times or more.

Democratic Progressive Party (DPP) Legislator Jerry Tsai (蔡其昌) said yesterday that there is definitely room to reduce credit/cash cards' revolving rates as banking institutions have plunged into the consumer banking businesses in the past two years.

This shows that retail banking is very profitable, he said.

Party caucuses will conduct negotiations tomorrow to review the final measures submitted by the association. If negotiations collapse, lawmakers could put their original proposal to vote next Friday.

Lawmakers also suggested yesterday that the monthly minimum payment for cards be raised from the current 2 percent to 20 percent so that cardholders' debts will not quickly snowball.

Financial Supervisory Commission Chairman Kong Jaw-sheng (龔照勝) and Cheng Shen-chih (鄭深池), chairman of Mega Financial Holding Co (兆豐金控) and chairman of the bankers association, both agreed to take the legislators' suggestions under consideration.

"We'll immediately set up a professional negotiation committee in the hopes of dealing with consumers' card debts within one year," Cheng said.

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