Approximately 400,000 Taiwanese "card slaves" are still hoping that the legislature will solve their debt problems by amending the Banking Law (銀行法).
The proposed amendment of Article 47-1 of the Banking Law is still pending at the legislature, and will only be put up for discussion after the new legislative session begins tomorrow.
If the amendment is approved and passed into law, the annual percentage rate (APR) offered by lenders will be limited to a maximum of 12 percent.
APR is commonly used to compare loan programs from different lenders, and is comprised of the base interest rate on loans plus various bank fees.
If the national APR is limited to 12 percent, it would mean that approximately 45 million credit-card holders will be able to keep NT$51 billion (US$1.6 billion) which they would otherwise have had to pay their banks in interest.
However, the amendment is unlikely to offer a perfect cure to the nation's credit problems, because it will force banks to implement stricter credit application procedures and turn away more clients applying for loans, Financial Supervisory Commission (FSC) spokesman Lin Chung-cheng (林忠正) said.
Around 30 percent of banks' current client base will be unable to secure loans if the amendment is passed, Lin said.
"We are concerned that they will become potential customers of illegal moneylenders. That will create more social problems and more potential for crime as well," Chinese Nationalist Party (KMT) Legislator Shyu Jong-shyong (徐中雄) said.
Solving the nation's card-slave problems should begin with the banks themselves, Shyu said.
"They should implement stricter credit application procedures. If they do not screen their customers more carefully, there will be more bad debt. If the situation is not brought under control, I will project there will be another 1 million `card slaves' 12 months from now," the KMT lawmaker said.
Shyu has provided a rough outline of a plan to help solve the nation's credit problems.
Credit-card holders who have a regular income and whose credit-card debts do not exceed NT$20 million will qualify for the proposed program.
If their total debt is less than NT$2 million, they will have to repay at least one-third of their debt every three months. They will be required to pay one-quarter of the total in the same period if their debt is between NT$2 million and NT$5 million; one-fifth if the total is between NT$5 million and NT$10 million; and one-sixth if the debt is between NT$10 million and NT$20 million. All debts must be settled in the space of three to five years, according to Shyu's plan.
Currently, the nation's maximum APR for credit cards stands at 18 percent, which has been identified as the main reason behind the bad debt problem plaguing local lenders. However, local banks' promotional campaigns and consumers' money management skills have also been criticized.
One bank has been running a commercial declaring: "Borrowing from banks is moral."
"Cash-advance services will make your life a lot easier," another bank's commercial states.
Lin said that the strong competition between lenders encourages them to lure more customers by telling them to "enjoy your life first and worry about your debts later."
"Taiwanese people seem to be rich and able to shop to their heart's content, but actually they are not. And more and more people are being hypnotized into thinking that they are rich," Lin said.
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