Only borrow if you earn
In fact, while cash cards stress their revolving credit lines, their convenience, and how easy they are to get-many banks require only that an applicant be 20 years old and have an ID card to apply-banks do evaluate applicants' ability to repay their loans. In other words, if you want a card, you had better have a job. Card issuers have been using their own systems to establish the credit limits of their cardholders for years. Cosmos Bank, for example, uses a Japanese software package that evaluates an applicant's debt situation, income, age, and gender in making its credit-limit recommendations.
According to Ta Chong's Indra Huang, "Credit limits depend on income." For example, Huang says an applicant with an annual income of NT$700,000 would have a credit limit of around NT$1.5 million.
But not every bank is so accommodating. According to Li Ming-feng, assistant manager of Cosmos Bank's cash-card department, Cosmos rejects 40% of the cash-card applications it receives. Under the pressure of public opinion, in the past six months it has also stopped issuing cards to students. Most current cash-card users are in fact between 25 and 40 years of age.
"Cash cards target a segment of society who in the past wouldn't have been able to do business with a bank," says Huang. He explains that nearly 600,000 Taiwanese households have a negative savings rate, and argues that providing these people with access to normal lending channels (instead of leaving them to the loan sharks and underground banks) is beneficial to society. "Once these people began to get cash cards, the black marketers and underground banks had no choice but to reduce their interest rates."
According to Huang, cash cards have been around for 40 years in Japan. In contrast, the Taiwan market, which is currently worth less than NT$90 billion, is still in its infancy. When one considers that Taiwan's credit-card market is worth NT$200-300 billion, the cash-card market seems to have a great deal of room to grow. Some even forecast that its value will eventually reach NT$400-500 billion.
Repayment is the question
But in American investment firm Morgan Stanley's most recent report on the Taiwanese credit card market (March 2003), the company stated that foreign investors held an extremely negative view of Taiwan's credit-card debt market. They believe that many banks do not have adequate risk-management mechanisms in place, and that the quality of their credit-card debt is deteriorating. An even bigger concern for Taiwan's financial markets is that banks have been too aggressive in offering other types of unsecured credit such as cash cards, which has greatly increased the chances of financial crisis.
In recent years, Taiwan's unemployment rate has been persistently high and salaries have remained flat. Nonetheless, consumer debt has expanded at a rapid clip of 20-30% per annum. In consequence, regardless of whether banks make an effort to control their bad debt by being careful about whom they issue cards to, cardholders are still going to suffer under the burden of the interest accruing on their maxed out credit cards.
Last year, Taiwan's outstanding debt on revolving credit accounts exceeded NT$300 billion. Moreover, a large portion of this debt was owed by Generation Xers.
According to a report by AC Nielson, men between the ages of 25 and 34 are most willing to spend on credit, and their favorite purchases are motorcycles, stereos, and cars. Additionally, a study of credit-card holders conducted in the second half of last year showed that nearly 28% of cardholders rolled their purchase balances over from month to month, and that 15% used their cards for cash advances. In all, then, more than 40% of cardholders carried debt on their cards.
Online on a website that calls itself "The Repayment Hell Club," visitors whose cards are maxed out post messages telling of their travails.
One 28-year old who earns NT$28,000 per month owes NT$870,000. "I don't earn enough to make ends meet and am always trying to scrape together some cash. I'm stuck in repayment hell. . . ." Another poster says, "I got my first card when I was a sophomore in college. When that one was maxed out, I got another. . . . Given my income, I'll never be able to pay off my debts."
Like there's no tomorrow??
Some believe that consumers' acquisition of excessive levels of debt is partly the fault of credit-card issuers, and they therefore believe that the card companies should be much more selective in issuing cards to students who haven't yet entered the working world.
Lin Chiu-pao, manager of Chinatrust Bank's media relations department, thinks that people, including students, should take responsibility for their own actions. "We should foster in children the ability to manage their credit themselves, not take away their rights," says Lin, who believes that punishing an entire group for the actions of a few people who cannot control themselves is unreasonable.
In any case, even granting that borrowing is "respectable," there is nothing respectable in being unable to repay loans. After one goes bankrupt, the banks press for repayment at regular intervals, and in some cases also hire collection agencies to bring more pressure to bear.
In March, a private "credit card crisis resolution corporation" appeared in Taichung claiming that it would pay off the debts of young people whose banks had not yet stopped their cards but who were unable to repay what they owed. The company's clients were required to cut up their cards and sign a guarantee never to make the same kind of mistake again. The only catch was that the company also charged 20% interest on the new loan, an amount higher than that on their credit cards.
Chen Kung (not his real name), a high-level manager at a consulting firm dealing with lending and collections, says that while his firm provides collection services for automobile loans, mortgages, tax bills, and even traffic tickets, their bread-and-butter is credit-card collections. "These days, three or four of every ten cases we get involves credit cards that are in arrears and have been cancelled."
In Chen's view, as a group, young people between the ages of 18 and 25 spend more money than any other segment of society, but have the least earning power. Having seen so many people get themselves into a bind through excessive spending, Chen believes that the more convenient something is, the more dangerous. He notes that credit- and cash-card issuers expect people to use the cards habitually, thereby digging themselves into an ever-deeper hole. Banks are actually much safer places to borrow money precisely because it is more difficult to get a loan from them.
Poor people like spending too!
In an article entitled "Since Wealth Came East," Hao Ming-yi, editor-in-chief at Locus Publishing, quotes American retail analyst Michael LeBoeuf as remarking on the 1950s: "The massive production capacity of our economy required that we adopt consumption as a way of life, that we make a ritual of buying and using goods, that we seek spiritual and personal fulfillment in consumption. . . . We consumed products at an ever-accelerating pace, using them up, breaking them, making them obsolescent, throwing them away. . . ."
Social commentator Nanfang Shuo has also remarked that people used to believe that they should spend only what they earn, but now they give no thought at all to taking on debt. In Japan last year, 215,000 people declared personal bankruptcy. In the US, the figure was 1.47 million. In Hong Kong too, more than 25,000 went broke. "Today's society is oblivious to the steps it is taking towards making excessive consumption a way of life," says Nanfang Shuo. "Moreover, among young people, this culture of excess consumption has become a 'culture of compulsory excess consumption.'"
People today seem to have fallen victim to LeBoeuf's bane. Nanfang Shuo laments: "The 'lifestyle' that grows out of material consumption has taken the 'living' out of life; consumption has become the point." Consequently, people feel perfectly comfortable living an "easy payment plan" life.
"Money's tight, but. . . ."
"Like it? Put it on your plastic!"
