The majority of domestic banks consider the Cabinet’s proposed new cap for interest on revolving credit unacceptable, the credit-card committee of the Bankers Association of the Republic of China said yesterday.
On Monday the Cabinet proposed capping the rates for credit cards and cash cards at 12 percentage points above the central bank’s short-term lending rate. That would put the cap at 15.5 percent currently.
A separate proposal in the legislature would cap the rate that banks can charge at 9 percent above the central bank rate, or 12.5 currently.
The current limit for interest on revolving credit is 20 percent.
“The 15.5 percent cap still doesn’t make sense to us,” Justin Lee (李懿哲), director of the association’s credit-card committee, said by telephone after a meeting with several other banks.
“The majority of bankers still find it hard to accept because a 450 basis-point cut [from 20 percent] is still very drastic and would have a hugely negative impact on banks in terms of revenue,” he said.
Lee reiterated the association’s proposal to create a risk-based system of adjustable rates similar to that of adjustable-rate mortgages (ARMs).
Chinese Nationalist Party (KMT) Legislator Lu Shiow-yen (盧秀燕) yesterday said she disagreed with the Cabinet’s proposal because the interest rates would still be too high and unfair for cardholders.
The Cabinet “shouldn’t yield to the banking sector and put the nation’s cardholders in a disadvantageous position,” she said.
Lu said she believed that Premier Liu Chao-shiuan (劉兆玄) had not settled on the proposed cap and would continue to communicate with the Financial Supervisory Commission (FSC), the legislature and the private sector, including banks and consumer protection groups.
But Lin Tung-liang (林棟樑), deputy director of the FSC’s banking bureau, said yesterday that his bureau was working to secure support for the Cabinet’s 15.5 percent ceiling.
Lin also said the commission was inclined to include the new cap in credit-card regulations under the Banking Act (銀行法) rather than amending the Civil Code.
Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor’s, yesterday expressed opposition to the cap because it could force some banks to limit their extension of credit to cardholders.
The rate cut would have negative repercussions for the overall banking system, which continues to suffer from marginal profitability, Taiwan Ratings analyst Susan Chu (朱素徵) said in a press statement.
“In our view, banks are likely to immediately tighten their credit extension on credit and cash cards,” she said.
If the cap is passed, Taiwan Ratings said, some banks might act more aggressively on tightening credit, while investors could begin to question the profitability and competitiveness of the domestic banking sector.
A scenario like this is likely to “slow down market consolidation or reduce the financial flexibility of weaker banks,” Chu said in the statement.
The legislature’s proposal to set a lower cap for interest on revolving credit was sponsored by KMT Legislator Hsieh Kuo-liang (謝國樑), who said the change would ease the financial burden of credit and cash cardholders who cannot afford to pay their debts.
It passed a first reading in the legislature on Thursday.
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