The regulations stipulated that debtors with unsecured or nonpreferential debts of less than US$360,000 could go to court to negotiate with creditors if creditors had declined such negotiations. In court, debtors could either present repayment plans based on their own capabilities and incomes, or apply for bankruptcy and redistribution of assets to creditors if the debtor was incapable of paying off the loan. After six years of repayments and three years of clear fiscal behavior, debtors would be able to apply for credit rehabilitation in nine years, the Chinese-language Economic Daily News reported June 9. Debtors applying for bankruptcy at court would have to follow certain lifestyle restrictions, however, such as not taking taxis, eating expensive meals or buying luxury goods.
The new regulations were expected to benefit around 280,000 card debtors, said the report, adding that this number excluded 220,000 debtors who had already negotiated with the banks.
"The newly passed regulations represented a belated and incomplete justice," said Liu Bao-cheng, director of the Association for Supervision of Financial Consumers' Rights, as quoted in a June 8 report by the Taipei-based Central News Agency. If passed earlier, he said, the law would have helped those debtors and their families who had no idea how to negotiate with creditor banks and had committed suicide when they failed to repay.
Liu saw the regulations as being incomplete now they lacked the article protecting debtors' homes during the period of repayment. Nor did the regulations protect those debtors who had already negotiated with banks before the legislation was passed. He expressed the hope that card debtors would be granted the chance to renegotiate at court, the CNA reported June 8.
Though the article preventing confiscation of the debtor's home was removed, it would be added to financial institutes' contracts of housing loans, the Judicial Yuan said in the EDN report, adding that debtors applying for repayment plans at court would still be able to negotiate with banks according to these contract.
Kuomintang lawmaker Shyu Jong-shyong said that, while law responded to an urgent social need, there was opposition from the creditor banks which accused debtors of trying to avoid debt repayment, according to a June 8 CNA report. Some people questioned why card debtors made purchases beyond their financial means, he said, adding that such accusations ignored the fact that over 70 percent of debtors fell into a vicious circle of clearing debts with card debts at a time when domestic banks had loose reviews on credit-worthiness before issuing credit and cash cards. This was a problem that should be faced and resolved by the whole of society, he claimed.
That the regulations were passed did not mean that debtors would be exempt from debts immediately, Shyu added. Rather, it offered them a mechanism of exit in six, or possibly a maximum of eight, years of repayment and thus an opportunity of rebirth.
Taiwan Solidarity Union lawmaker Kuo Lin-yung was quoted in the report as saying although some articles of the regulations were not passed as card debtors had hoped, they could be eased through gradual amendment of the regulations.
The legislation would distort social value by misleading people to think that they can borrow money without repayment, Hsu Teh-nan, chairman of the Bankers Association of the Republic of China, said in a June 8 CNA report. He questioned the thinking behind the legislation and stressed that a mechanism for negotiation between creditor banks and debtors already existed. If debtors lacked the ability to repay, he said, banks would be glad to extend the repayment period. That the regulations were passed in the Legislature would make the mechanism less flexible, he claimed.
Vice Chairman of the Cabinet-level Council for Economic Planning and Development Thomas Yeh said the regulations had taken both creditors' and debtors' positions into consideration. He expressed concern, however, that banks would tighten their granting of loans during the initial period after the regulations were implemented, according to another June 8 CNA report. Despite this worry that the regulations would spell bad news for domestic consumption and the housing market, Yeh claimed the impact on the nation's macroeconomic growth would require further observation.
The new regulations, including a "sunrise article" that put off their implementation for nine months after the regulations are promulgated by President Chen Shui-bian, are expected to go into effect in February 2008.
Write to Annie Huang at shihyin@mail.gio.gov.tw