The fate of a bill that would lower interest rates for revolving credit was uncertain yesterday after opposition lawmakers requested more cross-party consultation on the matter.
The legislature failed to take up the measure that proposes replacing the 20 percent ceiling on interest rates for revolving credit with a floating formula — 9 percent above the central bank’s interest rate on loans accommodations without collateral. That would cap the rate at 12.5 percent after the monetary regulator cut the rate for unsecured loans to 3.5 percent in February.
Banks have protested the planned revision, saying they would have no choice but to stop issuing credit and cash cards to clients with high default risk. That would drive desperate borrowers to underground lenders that charge higher interest rates, they said.
Chinese Nationalist Party (KMT) Legislator Wu Ching-chih (吳清池), a convener of the Judiciary and Organic Laws and Statutes Committee, said he would call a meeting on the issue once the bill is returned to the committee.
Wu and other ruling party colleagues had sought to push the bill through the lawmaking body on Tuesday after securing approval from Financial Supervisory Commission Chairman Sean Chen (陳冲) a day earlier.
Chen gave his go-ahead after KMT lawmakers agreed to raise the lending rate between companies to 12 percent over the central bank’s interest rate on unsecured loans, or 15.5 percent at present.
The compromise riled Democratic Progressive Party lawmakers who said they were not consulted over the change and insisted on using the committee version. The process is now at a standstill.
Wu said the twist would postpone the legislative process by a month, which would give the FSC enough time to reverse the amendment.
“The FSC has pressed to be allowed to handle the matter,” Wu said by telephone. “It may not take action for fear of charges of intervention.”
Wu said that over the years, the banks have turned credit cards into a financing instrument rather than a payment medium as originally designed.
“They have offered employees rewards for promoting credit cards and tempted consumers to borrow money despite their financial state,” Wu said. “That is an irresponsible and unethical pursuit of profits.”
A legislative aide, who helped draft the bill but asked not to be named, said he arrived at the formula after consulting the practice in Germany. The assistant said lending rates for revolving credit were lower in Germany and so were credit defaults.
Shen Chung-hua (沈中華), a finance professor at National Taiwan University, said the government should exercise restraint and allow the market to retire unscrupulous banks.
“Too much interference may suppress profitability and the government may have to bail out troubled banks with tax money later,” Shen said by telephone.
The academic added that the consumers knew the interest rates before using revolving credits and should bear the consequences of their own behavior.
Credit card transactions contracted a minor 1.4 percent to NT$1.39 trillion (US$41.2 billion) last year while cash card volume jumped 11.4 percent to NT$8.95 billion amid the economic downturn, FSC data showed.
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