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Bankers slam draft personal bankruptcy law

The Bankers Association of the ROC (銀行公會) yesterday called on the legislature to carefully review the proposed personal bankruptcy law (破產法), warning that it could cause massive losses to society if passed in its current form.

Although the bill has been mired in controversy, the legislature's Finance Committee passed the bill on the first reading last month.

Lawmakers are currently engaged in cross-party negotiations to send the bill for second reading on the legislative floor.

The bill proposes allowing consumers incapable of paying back unsecured debts exceeding NT$12 million (US$360,860) to apply for rehabilitation.

"We're not against the enactment of such a law. But some articles should be removed and complementary measures should be included to ensure financial stability," said Spike Wu (吳清文), chairman of the association's Consumer Finance Unsecured Debt Restructuring Program Committee.

Wu said the biggest problem with the bill was the provision allowing debtors in rehabilitation to only pay interest on home mortgages for up to 10 years without bearing the risk of having their residence put up for auction by creditor banks.

Lawmakers argued that this was designed to protect indebted consumers' rights to shelter.

Wu, also a senior vice president in charge of retail banking at Taishin International Bank (台新銀行), said the bill should not involve secured loans and that it would only extend credit abuse over to the mortgage sector.

Justin Lee (李懿哲), a committee member and vice president of the legal department at Citibank Taiwan, said if housing loans were included in the rehabilitation, creditor banks would have to set aside provisions to cover possible losses, which would weaken their returns on equity.

However, the bill does not stipulate how much the banks should set aside for provisioning, he said.

The Taipei-based bankers association also strongly urged that a two-year sunrise clause be included, giving the government sufficient time to train professionals to deal with bankruptcy applications and educate the public on how not to abuse the bill.

"The bill should also make credit consultations compulsory and exclude those who have agreed to pay back debts in previous debt-restructuring program from applying for rehabilitation to avoid a domino effect," Wu said.

The association cited Hong Kong, which revised its personal bankruptcy law in 1998, as an example. During the first three years of its implementation, a whopping 30,000 bankruptcy applications were filed. The total bankruptcy volume topped HK$21.1 billion (US$2.7 billion) in five to seven years, the association said.

"Taiwan has a larger population than Hong Kong. We're worried the bankruptcy volume would surpass that figure as well," said Eric Tsai (蔡國基), a vice president at Chinatrust Commercial Bank (中國信託商銀).

The association held a press briefing yesterday to celebrate its move to a new office.

The committee was established in January to provide consultations for indebted consumers after the debt-relief mechanism was phased out at the end of last year.

As of last year, 270,000 people applied for debt bailout and 227,000 agreed to pay back debts totaling NT$330 billion with lower interest rates and longer payback periods.

Since the new committee was set up, it has received 12,000 phone calls asking for debt consultations, Wu said.

He added that the committee was able to help 96 percent of the callers through the phone consultations, but had advised the remaining 4 percent to talk to their creditor banks.
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