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Legislature passes debt measures

Democratic Progressive Party (DPP) caucus whip Ker Chien-ming, left, and other DPP lawmakers try to take control of a microphone yesterday from Legislative Speaker Wang Jin-pyng, center, in an attempt to block a vote on whether to revive the 18 percent preferential interest rate system for retired military personnel, civil servants and public school teachers. PHOTO: CHANG CHIA-MING, TAIPEI TIMES

The consumer debt clearance regulations (消費者債務清理條例), designed to resolve the consumer credit and cash card-debt problem, passed the legislature yesterday, providing overwhelmed borrowers with a chance to start anew.

With the regulation, cardholders having unsecured debts or non-preferential debts of less than NT$12 million (US$360,000) can go to court to negotiate a repayment plan and method for rehabilitation, while those unable to pay back their debts can apply for bankruptcy.

But the regulation stipulates that debtors can only seek assistance from the courts if they fail to personally negotiate a payback plan with banks.

The Financial Supervisory Commission (FSC), in charge of banking, said that 227,000 people had applied for the special debt-relief mechanism by the end of March, under which they were granted lower interest rates and longer payback periods.

The total number of indebted credit and cash cardholders nationwide is estimated to be 500,000, if borrowers outside the mechanism are included.

To prevent debtors from reneging on payback plans, the regulation states that debtors covered by the mechanism cannot apply for either rehabilitation or bankruptcy.

Exceptions are allowed if debtors are unable to comply with their plan through no fault of their own.

Debtors applying for rehabilitation or bankruptcy will be subject to certain restrictions. The regulation states that the courts are entitled to require debtors in rehabilitation to live frugally and can revoke their rehabilitation if they violate the requirements of their payback plan.

Those who are declared bankrupt would be barred from taking 175 kinds of jobs, most of them financial in nature, and would be barred from being civil servants for seven years.

Bankrupt individuals would also be prohibited from traveling abroad, taking taxis, eating expensive dinners or buying luxury goods.

If they are found to be purposely hiding properties or transferring assets to others, or living a luxurious lifestyle during the bankruptcy period, the court would be entitled to have them detained.

The extent of the consumer debt problem became apparent in the summer of 2005 and was blamed on the failure of banks to perform strict credit reviews when issuing new cards.

"Since the draft regulations were sent to the legislature last April, the banking sector has not stopped lobbying to try and block them," said Lin Feng-jeng (林峰正), president of the Judicial Reform Foundation.

Consensus on controversial articles was finally achieved on Thursday during negotiations attended by representatives from The Bankers Association of Taiwan, ROC, debt-relief activists, government officials and three legislators.

They were the Democratic Progressive Party Legislator Ker Chien-ming (柯建銘), the Chinese Nationalist Party's (KMT) Legislator Shyu Jong-shyoung (徐中雄) and Taiwan Solidarity Union Legislator Kuo Lin-yung (郭林勇).

One of the biggest controversies was the initial provision that prohibited creditor banks from putting debtors' residences up for auction if they got into arrears on their mortgages during the rehabilitation period, which can last from six to eight years.

As the banks refused to make concessions, the provision was struck from the regulations, but a resolution was attached that demands banks include the spirit of the provision into their standard contracts when issuing mortgages.

Shyu, the main advocator of the regulations, said that the debtor side also gave up on a provision that would have allowed debtors in rehabilitation to only pay interest on their mortgages in exchange for the passage of the regulations.

"The nation has mortgages totalling NT$4.8 trillion. We had to consider the consequences the two provisions would cause banks in terms of unrecoverable debt," Ker said.

The regulations will become effective nine months after the president promulgates them.

In related news, lawmakers yesterday put a proposal to reinstate the controversial 18-percent preferential interest rate on the savings of retired civil servants, military officials and teachers on hold.

The pan-blue dominated legislature last December abolished a plan put into effect by the Examination Yuan in February last year that the government branch in charge of the country's civil service said would rationalize the retirement system.

The DPP asked for a reconsideration of the abolition ruling and the request was scheduled to be tackled in yesterday's plenary session, but the speaker decided to skip the issue.

Calling the KMT's effort a move that would stir up "widespread indignation and discontent," Wang urged the KMT to offer the public an apology for trying to force the bill through.

ADDITIONAL REPORTING BY FLORA WANG

Also see story:
Bankruptcy bill passed by legislature

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