A legislative battle over capping interest rates has been raging for months. At the end of last year, KMT legislators put forward an amendment to the Banking Act that would cap credit and cash card interest rates at 10%. The proposal became the subject of negotiations between the governing and opposition party caucuses. The Ministry of Justice also decided to propose adding a chapter to the Civil Code limiting credit and cash card interest rates. On March 14, the Legislative Yuan's Judiciary Committee passed a first reading of an amendment to the Civil Code that would substantially lower the ceiling on interest rates from 20% to 10-12%.

Although the prospect of this amendment, which is based on political considerations, may be greeted with cheers from Taiwan's 500,000 card debtors, it has also raised concerns that it may derail financial liberalization, with serious repercussions. For example, faced with higher risk, banks could cut back on credit all round, forcing people who really need loans to turn to loan sharks with questionable collection methods. South Korea, where the relaxation of interest rate ceilings proved highly effective in curbing the proliferation of card debt, is a useful case for comparison. The danger that Taiwan's card debtors will be given too soft a ride gives pause for concern.

Following a spate of bad financial news, on March 14 the Taiwan Stock Price Index dropped 84 points, and 13 financial stocks hit new lows for the year.

Meeting in emergency session late into the night, the Executive Yuan's Finance and Economy Task Force decided to respect market mechanisms and not to cap interest rates, but it also declared its hope that banks would take account of personal risk profiles when setting interest rates. The Executive Yuan has made clear its opposition to a policy of capping credit and cash card interest rates. But it remains to be seen whether legislators, ever mindful of the next election, will heed this sound advice.

During the meeting, the task force also formulated six measures to tackle card debt, including supervision and moral suasion of card-issuing banks by the Financial Supervisory Commission (FSC); bringing excessive issuance of credit cards and lax credit screening under control; keeping an eye on whether banks are making excessive profits; starting in April, temporarily suspending the outsourcing of credit card and consumer loan sales and the associated aggressive marketing tactics; and forceful inspections and policing of violent and illegal debt collection.

In fact, since the banks and more than 21,000 card debtors began negotiating repayment schedules more than two months ago, over 10,000 cases, involving debts totalling NT$17.1 billion, have been settled. Progress has been slow because many debtors are either unwilling to face reality or still have some concerns, such as whether they can renegotiate their payment schedule even if they have no income.

As a concession to debtors, a few days ago the FSC announced that banks must halt debt-collecting activities for three months in the case of low-income and unemployed card debtors willing to renegotiate their repayment schedules, so as to allow them to improve their financial situation. Creditor banks must also complete debt negotiation applications for qualified debtors within eight business days.

Many card debtors are also waiting to see whether the Judicial Yuan's expected draft in April of a personal debts clearance law (popularly known as the bankruptcy law) will provide for the cancellation of all uncollected debts. But legal scholars warn that the Judicial Yuan's draft is aimed at "natural persons who have not engaged in business operations in the past five years," such as government employees, company employees, laborers, and taxi drivers, and thus will not apply to all card debtors. Given that Taiwan's judicial resources are limited and cases are piling up, the backlog of bankruptcy filings is growing faster than it can be processed.

Finally, even if an individual plans to declare bankruptcy, he must be mentally prepared for tough times ahead, because he must wait seven years to recover creditworthiness and other rights. Persons who declare bankruptcy are also liable to court orders restricting their freedom of movement: they may not move house, leave the country, or even take taxis. Debtors should not hope for a windfall; the psychologically soundest as well as the most effective approach is to negotiate a realistic repayment schedule with their bank that will enable them to pay down their debt as quickly as possible.

Taiwan has already paid a huge social price for card indebtedness. Society is duty-bound to help card debtors rebuild their lives and to encourage ordinary people to make sound consumer choices and to develop a sense of personal responsibility for their finances.