Economy

FSC to review credit cardholder penalties

• Publication Date：06/12/2009
• Source： Economic Daily News

Taiwan’s top financial regulator has decided to review banks’ default penalty mechanism for credit cardholders following a court ruling that for the first time struck down such a penalty.

Sean C. Chen, minister of the Financial Supervisory Commission, said June 11 that the commission’s Banking Bureau would investigate whether such charges are reasonable. The methods and criteria used to calculate the default penalty would also be reviewed.

The Taipei District Court recently ruled that revolving interest charged against holders of cash cards and credit cards violated Article 12 of the Consumer Protection Act. Such interest charges were unfair to consumers, the court said, and the defendant would be required to repay only the principal. This was the first court decision ever to nullify default interest or penalties.

Lawmaker Lu Shiow-yen asked Chen to state his views on the case at a joint meeting held by the Legislative Yuan’s Finance Committee and Economics Committee June 11. The minister was reluctant to comment on individual cases, but shared his concerns about the overall system.

There is room for improvement concerning the default penalty measure, Chen noted, stating that the FSC’s Banking Bureau would study the revision of related regulations. The financial watchdog has held two public hearings on revisions to credit card rules, but has yet to propose related amendments as the Legislature has not yet decided on a ceiling for the rate cash card and credit card holders may be charged.

According to Chen, charging cardholders a revolving rate of interest is a common practice worldwide, but that there remains room for improvement concerning the default penalty. Banks should be allowed to levy such a fee, but the methods and criteria used in its calculation should be reconsidered.

Lu also asked Chen to comment on the amendment of Article 205 of the Civil Code, which concerns the interest rate ceiling that applies to credit cards and cash cards. The minister expressed support for setting separate ceilings, one for cash cards and credit cards and one for private loans. The FSC, he noted, still supports an upper limit of 12.5 percent per annum for the former.

Negotiations between the FSC and lawmakers suggest the maximum allowable interest rate for private loans will be set as the Central Bank of the Republic of China’s rate for accommodation without collateral loans plus 12 percentage points, which, if in force today, would be 15.5 percent. The top rate for credit and cash cards, meanwhile, would be 9 percentage points over the central bank’s rate—12.5 percent at present. (HML-MJH)