Investors breathed a sigh of relief as lawmakers yesterday finally agreed to drop the proposed legislation to cap interest rates on revolving credit and cash-advance card loans. This was done in response to banking institutions' goodwill gesture of devising an unprecedented debt-relief plan for heavily indebted cardholders.
Negotiations across party lines will still be conducted in the legislature as scheduled this morning, although the Chinese Nationalist Party (KMT) said that it would not insist on pushing through its original proposal of restricting the spread between the savings rate and the revolving rate of credit/cash-card loans to less than 10 percent.
"It's a big victory [for us and card debtors]," KMT Legislator Hsu Chong-hsiung (
"So far, we're satisfied with the measures, but we'll demand to review the efficiency and effectiveness of the mechanism every month," said Hsu, who has taken a leading role in promoting the bill.
Following several days' concentrated discussions with diversified opinions voiced by various banks, the association passed the standardized card-debt negotiation mechanism at its board meeting yesterday morning. The mechanism takes immediate effect and is aimed at rescuing borrowers who are heavily indebted.
The mechanism will only apply to card debts incurred from yesterday to avoid posing a moral dilemma, the association said.
Debtors whose unsecured loans are at least 25 times their monthly salary but who have a good record of making payments could be eligible for installment programs based on reduced interest rates. Five levels are being offered: 12-month installments at an annual rate of 3.88 percent, 24 months at 4.88 percent, 36 months at 6.88 percent, 60 months at 9.88 percent rate and 80 months at 12.88 percent.
Negotiations will be held on an individual basis with people who have failed to make payments for more than 30 days and have a debt burden ratio of less than 17 times their salary. Debtors with a ratio of between 17 and 25 times their salary are eligible for a 60-month installment scheme at an interest rate of 3.88 percent. If the ratio exceeds 25 times, an 80-month, zero-interest installment program will be available.
To serve as a warning, those entering this payment mechanism will be barred from applying for new cards for several years after their debts have been cleared. The association said it will discuss the details in the near future.
In addition, to prevent cardholders' outstanding debts snowballing, the association agreed to raise the monthly minimum payment on credit cards from the current 2 percent to 10 percent -- although the change is only applied to each month's new card sales. This rule will take effect in March at the earliest and is expected to affect 3 million consumers, or one-third of the nation's credit-card holders.
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