Taiwan Cabinet to oppose requested ceiling on credit card interest rates
January 5, 2007 8:44am CST
My take: Credit card debts are becoming a great and great problem. It's not only US that overspends on credit, accumulating debts, to financial a lifestyle it cannnot truly afford, but is unwilling to give up. Cabinet to oppose requested ceiling on credit card interest rates 2006-03-16 / Staff Reporter / By Dennis Engbarth The Democratic Progressive Party Cabinet resolved yesterday to support opposition calls for the imposition of a legal ceiling on credit or cash card interest rates to help resolve the problem of credit card debt. Government Information Office chief Cheng Wen-tsan also rejected claims by opposition Kuomintang lawmakers that the refusal to back such a ceiling showed that government policy was "tilting in favor of banks or conglomerates." Cheng stressed that international financial industry experience had shown that considerations of the need to rely on market mechanisms and avoid contractions in consumer financing and overall economic growth argued against the imposition of such a ceiling. The GIO minister stated that the Cabinet had decided to "engage in rational dialogue based on international experience" with opposition lawmakers on the issue and cited the objections raised by KMT Legislator and former KMT spokesman Tsai Cheng-yuan (???) to the proposal for an interest rate cap. Cheng related that Vice Premier Tsai Ing-wen (???) had convened a meeting of the Cabinet-level economic and financial task force including responsible officials of the Central Bank, Financial Supervisory Commission and Ministry of Finance Tuesday evening. Cheng said that the cross-ministerial meeting reached consensus in principle on several issues, including agreement to oppose proposals for an interest rate cap as "the improper design of a legally mandated interest rate ceiling on credit and cash cards would have effects that would contract credit and harm the economy." Instead, Cheng said, the Cabinet task force had agreed to "respect the market mechanism for credit and cash card interest rates" and call on the FSC to intensify supervision of bank credit and cash card operations in order to curb "chaotic and excessive issuance of credit and cash cards" and strengthen risk management to "cure the problem at its source." Cheng said the FSC would intensify its supervision of banks to ensure that financial institutions would effectively curb excessive issuance of cards and excessively relaxed credit policies and also to pay special concern to whether there were cases of excessive profiteering. Cheng added that the FSC would pressure banks to institute risk control measures, including credit checks on new card users and clear explanation to card users of their risks and obligations. The task force also agreed in principle that banks should use differential interest rates to engage in client credit risk management by charging higher interest rates for higher credit risks and offering lower interest rates for more reliable card users. The Cabinet task force also reaffirmed that the root cause of the credit and cash card crisis was the "inadequacy of bank risk control mechanisms in issuing cards" and agreed that the FSC would work with banks to upgrade risk controls and draft legal revisions to bolster regulation of cash and credit cards. The task force also urged indebted card users to make use of the FSC sponsored mediation mechanism to negotiate repayment schedules and reaffirmed that social assistance mechanisms, including guidance for employment, were available to assist card holders who lacked the capability to repay their debts. Regarding the criticism from KMT lawmakers that the government was "tilting in favor of conglomerates," Cheng stated that the government's regulation of the financial industry needed to consider many aspects and was not simply a matter of "leaning in favor of banks." These included how Taiwan's regulatory framework and financial industry environment was perceived internationally, the impact of the regulatory framework for Taiwan consumer finance on overall private consumption and economic growth and numerous other factors. Cheng stated that the pressure from the FSC on banks to implement tighter risk management and its demands that banks bear heavier responsibility for card risk management "were not based on what the banking industry desired but on the consideration of overall financial stability."