When a society fails to live up to expectations of harmony and stability, people critical of the society usually tend to imagine even greater threats. Recent reports about people who have committed suicide amid concerns over their credit card or cash card debts are examples of such a threat. The problems associated with lax card issuance, if not resolved by both the government and banks, could generate grave social problems and a series of economic consequences such as rising bad debts, a shrinking consumer loan business and a less promising outlook for the financial sector and the economy as a whole.
To ensure the overall health of the banking industry, the Financial Supervisory Commission and banks have put in place a card-debt negotiation mechanism for debt-ridden cardholders. Banks have also started to adopt flexible pricing on debt paybacks and agreed to halt debt-collecting activities for three months for unemployed debtors and low-income borrowers.
This will give the nation a chance to review what the social and economic consequences could be, after the commission failed in its duty to first warn banks of possible risks that could follow from issuing numerous credit cards to the same customer. It also gives banks a good lesson that when they aggressively promoted credit and cash cards a few years ago, they underestimated the importance of risk management and thus created a potential for bad loans.
But is mounting consumer bad debt supremely unmanageable for banks? No, it isn't. According to a report released by Standard & Poor's last week, card loans accounted for just 4.3 percent of total outstanding credit in Taiwan at the end of last September, while domestic banks remain supported by a stable macroeconomic environment and adequate capitalization. This means the situation is manageable.
But there are other questions: Isn't card issuance solely a responsibility of banks? Aren't card loans the main factor contributing to suicides rather than other forms of consumer credit? The answer to both is still "No." In fact, when most news media and critics began to paint the heavily indebted as "card slaves" and banks as "bloodsuckers," it was simply to serve the role of attracting public attention to banks' high revolving interest rates. However, these criticisms demonstrate a lack of understanding of the debtors' portfolios or any empirical evidence.
While card loans may not be ideal, their growing popularity reflects the relative appeal of credit and cash cards. They represent a type of unsecured debt, an easily accessible line of credit and perhaps a source of credit of last resort that debtors can use to stay afloat and avoid defaulting on other bills. To low-income borrowers, these cards may serve as a substitute for other sources of funds such as pawn shops and personal finance companies.
Therefore, unless there is a clear picture of the debtors' portfolios as well as empirical studies on the correlation between card use and household indebtedness, there is no reason to claim that these cards "kill" people as some have suggested, although the high revolving interest rates certainly irritate.
The government and lawmakers have to work together to enact a bankruptcy law for individual borrowers and offer a contingency plan to address employment and loan problems facing heavily-indebted, low-income cardholders. But there should be no sympathy for borrowers who spend far beyond their means. Instead, we should start to worry about a possible "moral hazard" situation where some debtors may try to avoid paybacks through a debt negotiation mechanism or the proposed individual bankruptcy law.
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