Print

Mail

wiki links

Editorial: Tough love for credit card debtors

The legislature has been living up to its reputation for woeful inefficiency. Many important pieces of legislation -- such as the annual budget and nominations for the Control Yuan -- remain frozen.

Those that are being debated raise troubling questions.

Usually legislators only pander to corporate interests. But when election time draws near, they suddenly develop a concern for public opinion and pass populist laws to win votes from the middle and lower classes. A draft law on clearing consumer debt now before the legislature is one example.

The bill was designed to help overwhelmed borrowers reduce debt and have a chance at starting anew. But in its present form the bill encourages dependency. This, in turn, would lead banks to stricter behavior toward borrowers without credit problems. Disadvantaged groups should be protected, but not at the cost of distorting fair allocation of resources.

Banks are responsible for a large part of the surge in credit card debt. They failed to perform rigorous credit history checks, profited from high interest rates and passed on defaults to pernicious debt collection companies.

The banking industry is worried that the bill will create two problems. First, the price of obtaining credit will rise for everyone because banks will hold applicants to stricter standards. People with poor credit will turn to underground lenders, thereby adding fuel to the black-market economy.

The Financial Supervisory Commission is empowered to regulate banks, but there isn't much it can do about loan sharks. But with the legislature now working to benefit the underground economy by binding the hands of the banks, everyone will suffer.

The second problem is the potential psychological risk. Zealous implementation of a revised bankruptcy law would make many debtors believe it is a form of welfare -- a method to help them manage their finances. This could lead those negotiating the terms of their loans to turn to debt reduction instead.

Therefore the courts, which are responsible for arbitrating debt settlement, must play a careful role as intermediaries. They should also set certain limits for the incomes and expenses of those recovering from severe debt in the interest of social parity.

The draft law allows card abusers with less than NT$2 million (US$60,400) in debt -- the majority, in fact -- to keep their homes. However, people with mortgages will still have to repay those loans or see their houses sold at auction. With the government favoring people with credit card debt, what are those carrying mortgages and those who cannot afford to buy a home to make of this? It is tantamount to encouraging them to become card abusers to protect their homes.

Credit card debtors certainly deserve help. However, they also have to take responsibility for the decisions they made and learn basic lessons in financial management.

At the same time, having reaped profits from high interest rates, banks should not pass off defaulting loans to underground debt collectors. Nor should the government resort to bleeding-heart policies and distort the problem by lavishing resources on it.

Otherwise, the authorities will be unable to attack the problem at its root, and this might lead to new and more serious social and economic difficulties.
This story has been viewed 1970 times.