Three major business groups expressed concern yesterday over a legislative proposal to lower the 20 percent cap on revolving credit interest rates to as low as 12.5 percent, which they said would have a negative impact on the economy.
Banks would cut credit lines by a total of NT$690 billion (U$21 billion) and reject high-risk cardholders, leading to NT$270 billion less spending per year, the Chinese National Association of Industry and Commerce (工商協進會), the Chinese National Federation of Industries (工業總會) and the General Chamber of Commerce (全國商業總會) said in a statement.
They said that the proposed rate cut also went against the government’s goal to boost domestic consumption and internationalize the financial market, adding that the move would discourage foreign investment.
Financial Supervisory Commission Chairman Sean Chen (陳冲), however, disagreed.
Chen said the rate cut would have a limited impact on domestic consumption.
He said the planned rate cut would curb the use of credit cards as a lending instrument instead of a payment tool.
Citing Fitch Ratings estimates, the business groups said that several sectors such as retailers, department stores, upstream manufacturers and tourism operators would be seriously hurt by the rate-cut plan, and that the plan would drag the economy down by 0.6 percent a year.
The move would also push people in need of cash to loan sharks, who often charge interest rates of more than 30 percent, the statement said.
The business groups urged the government to re-evaluate the feasibility, of the proposal saying 3,200 out of a total of 10,000 money lenders in Japan were forced to close because of similar cuts in 2006, when unsecured loans by seven major lenders there suddently saw a 25 percent decline.
The number of small businesses closures in Japan and disputes between borrowers and loan sharks also hit a record high, the statement said.
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