The fate of the bill to lower interest rates on revolving credit remained uncertain yesterday as ruling and opposition lawmakers disagreed on the issue and a foreign bank urged the legislature to respect the market mechanism.
Victor Kuan (管國霖), country business manager of consumer banking at Citibank Taiwan, said the proposed revision would create a credit crunch and dampen consumer spending once it clears the lawmaking body.
The measure, sponsored by Chinese Nationalist Party Legislator Hsieh Kuo-liang (謝國樑), seeks to replace the 20 percent ceiling on interest rates for revolving credit with a floating formula, namely 9 percent above the central bank’s rate on loans without collateral. That would cap the rate at 12.5 percent for credit and cash card debts as the borrowing costs for unsecured loans currently stands at 3.5 percent.
The bill further proposes setting the maximum lending cost for loans between companies at 12 percent above the central bank’s rate.
Kuan said banks would have no choice but to deny loans to customers with high default risk.
“People who have no cash on hand will either turn to the black market or stop spending,” Kuan told a seminar. “The scenario is unfavorable to financial health or economic growth.”
Hsieh and other colleagues said the legal reform would ease financial burdens on economically disadvantaged borrowers now that the central bank has made seven rate cuts since last September.
Kuan said banks were receptive to a floating design, but believed the government should avoid setting the rates for lenders. He challenged the lawmakers to explain how they arrived at the formula when the Financial Supervisory Commission had yet to complete a study on revolving credit costs.
“It is better to postpone the legislative process until after the report is published,” Kuan said. “The desire to care for the disadvantaged may backfire and benefit underground lenders instead.”
Wu Ching-chih (吳清池), another KMT lawmaker, said he planned to call cross-party talks later this week to remove resistance to the bill, which passed its first reading last month.