"Card slave" bill passes first reading in Legislature despite banks hostility

This article was written by Annie Huang and published by the Taiwan Journal on April 19, 2007. It reports that lawmakers recently completed the first reading of a personal bankruptcy bill that, if promulgated, would establish a legal basis to deal with consumers' debts. According to the bill, borrowers with outstanding debts under US$363,600 would be able to go to court and apply for debt-settlement negotiations with their major creditor, should the two sides fail to reach an agreement in private.

According to this article, the bill attempts to offer a choice to debtors with small-sum loans on housing, credit cards and cash cards. Those with regular incomes, who are therefore able to pay off their debts gradually, would be allowed to apply to court for further negotiations with banks or other creditors before having to apply for bankruptcy. This would allow them to retain their homes while repaying debts. However, those debtors without regular incomes or who failed to pay debts in accordance with terms previously negotiated would have their assets confiscated and distributed among their creditors.

The bill offered hope to people who had run up large debts using credit and cash cards, which became a major problem for the domestic financial sector since 2005. Some so-called "card slaves" were reported to have committed suicide due to failures to pay debts.

From December 2005 to April 2006, the government's Financial Supervisory Commission launched a program that allowed credit and cash card holders to enter into debt-settlement negotiations. About 53,000 credit abusers joined that program. Now, the bill represented an extension of the program to the benefit of debtors.

But the bill raised concern among some government officials and within the banking sector in terms of its potential negative impacts. For example, some argued that if the new law gave debtors too much flexibility, it would harm Taiwan's banks. Furthermore, banks would be more reluctant to grant loans, which could force desperate clients to borrow money from unregulated sources.

Officials from the Financial Supervisory Commission agreed that banks would perhaps tighten housing loans. They also claimed that the article protecting a debtor's property could cause moral hazard and allow debtors to continue living in luxury beyond their means. It might be acceptable if the house was small and within a limited price, but the bill did not include any such conditions.

In order to reduce the bill's impact, officials from the Financial Supervisory Committee suggested that a "sunrise article" should be included, which would delay implementation until two years after the bill was promulgated. This would reduce the impact on the banking sector by providing a period for preparation.

Others argued that if a "sunrise article" was included, then the law would be of little help to card slaves if they had to wait two years for its implementation. Banks could also accelerate their debt collection during that period. In any case, creditors could still reclaim the debt and interest for the period under the law's protection.