Cash card bandwagon puts many in debt

Financial institutions saw cash cards as a quick way to make money, considering a surge in Cosmos Bank’s profit after the launch of George and Mary. Pretty soon, other banks followed suit. Chinatrust, for example, launched the “Wish” cash card, and Taishin Bank rolled out the “Story” card. Both banks used success stories in their TV commercials set against catchy tunes.

“Banks jumped on the bandwagon following Cosmos’ success,” said Elaine Suen, executive vice president and general manager of the consumers banking department of International Commercial Bank of China. “Financial institutions would not miss the opportunity to make more money.”

At the same time, cash cards quickly gained popularity among customers, given the nature of the product. Since it does not require a collateral on the borrower’s part, it is more attractive to those without fixed assets, typically students, new entrants to the jobs market and those who are not so well-to-do. The application process is simple — people can get a cash card without having to provide documents, such as a tax withholding form, to demonstrate their financial ability to pay.

Yet the easy-to-get and easy-to-use nature of cash cards does not necessarily translate into responsible usage on the user’s part. People throwing away tens of thousands of dollars after using cash cards find themselves heavily in debt, given the fact cash cards don’t charge low interest.

“Interest rate is typically at 18.25 percent. That means, if you borrow NT$1 million, your interest is NT$182,500 for a year,” Suen said. “Plus, for every withdrawal of cash, there is a NT$100 transaction fee.”

Worse, people usually carry more than one cash card. “I’ve seen people carry three credit cards and two cash cards,” said Chen Chen Chao-hsien, vice president of P. I. C. K. International Asset Management Co., which does collection service for several of Taiwan’s major asset management firms. “And these people are often NT$500,000 to NT$1 million in debt.”

While debtors are from all walks of life — from police officers to college students — most of them are 20- or 30-somethings who get advance cash to buy anything that they have a desire for — luxurious hand bags, expensive cosmetics or even automobiles, Chen said.

He cited one of his collection targets as an example. “Mr. Lee is just a young man in his 20s, with monthly salary at about NT$30,000. He is NT$800,000 in card debt, yet he can’t pay it back considering how much he spends a month: NT$3,000 on cell phone bills, NT$2,000 on clothes, NT$15,000 on rent, NT$2,000 on dining with his girlfriend, and a monthly payment on his motorcycle loan,” he said.

Banks often contract a legal collection agency to get the money away from debtors. Collections take place in several phases, Chen said. An agency first writes to the debtor, a method that usually amounts to nothing. The agency would then call the debtor. If that still doesn’t work, the agency would conduct house visits. Then, as a last resort, the case gets turned over to the court, and, with a court order, the debtor would see a sum of money deducted from his or her paycheck as a way to pay back the bank.

Some people, however, are in the unfortunate position of being harassed by collection services that resort to threats or other scare tactics. Some debtors, pushed to the wall, used illegal and violent means, such as robbing a convenience store, to get the needed money. Some, not wanting to burden the society with their problems, simply commit suicide.

While it’s not good for anyone to be in debt, it’s not the end of the world, financial experts say. Specifically, there are products and tools that could help borrowers pay back their debts. Those in need of financial assistance, for example, may apply for a refinance loan, which charges a much lower interest and allows a longer payback period.

“It would be easier for people to get refinancing if they had a job or certain types of fixed asset that could be used as a collateral,” Suen said.

At the same time, debtors must change their spending habit. The Mr. Lee example mentioned above is a big no-no, Suen said. “It would be best if you get rid of all your cash cards and keep just one credit card,” she said.

Sometimes, the card-issuing bank will offer certain “perks” for those who have shown sincerity about paying back the debt. For instance, the bank would cut a deal with the borrower by lowering, or even eliminating, the interest on the loan.

“The thing is, you’ve got to make a deal with the bank first. Otherwise your interest will keep growing and growing,” Chen said.

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