A bill that would reduce the interest that banks can tack onto late credit card payments passed its first reading in the legislature yesterday.
The bill would cut the limit on all contracted interest rates from 20 percent to 9 percent above the central bank’s rate for three-month loans without collateral.
That would be 12.5 percent, after the central bank cut the short-term lending rate to 3.5 percent last month.
Chinese Nationalist Party (KMT) Legislator Hsieh Kuo-liang (謝國樑), who is sponsoring the bill, said the measure would help the interest rates for revolving credit reflect the series of rate cuts the central bank adopted in the last six months to stimulate private consumption.
The change could substantially ease the financial burden of credit and cash card holders who cannot afford to pay their debts, he said.
Present interest rates are “unreasonably high,” often at 15 to 20 percent, he said.
Hsieh said civic groups and those struggling to make ends meet had called for the reform. The bill must pass a second and third reading before it is enacted.
“The bill may clear the legislature in two or three weeks,” Hsieh said by telephone. “No colleague voiced protest during the committee review.”
Domestic banks had expressed strong opposition to the legislature taking any step to cut the cap without considering banks’ operating risks.
After yesterday’s reading, a foreign bank executive who requested anonymity said lower rates would drag down some card issuers who were already struggling.
Desmond Chen (陳義中), senior vice president of Ta Chong Bank (大眾銀行), yesterday said his bank would have to stop issuing credit cards to consumers with bad credit if the bill is passed.
Banks are profit-seeking businesses and will be forced to raise fees for other services to stay in the black, he said.
Taipei Fubon Bank (台北富邦銀行) said it was looking at contingency measures.
Financial Supervisory Commission Vice Chairman Wu Tang-chieh (吳當傑) yesterday sided with banks, saying that legislators meant well, but the bill could drive people to underground lenders because banks would not engage in unprofitable business.
Credit borrowing costs average about 13 percent and would hit 16 percent after credit risk is taken into consideration, he said.
Without the incentive of profit, banks would quit the credit card business altogether, prompting desperate borrowers to turn to underground lenders, who charge much higher interest, the official said.
ADDITIONAL REPORTING BY JOYCE HUANG
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