Package of measures against surging household debts to be unveiled Sunday
Financial authorities plan to induce the public to control their use of credit cards to address rising household debts.
Instead, the usage of check cards ― which refer to cards containing functions of both credit and debit cards ― will likely be promoted.
The policy, aimed at easing the financial burden of debt-saddled low- and middle-income households, will be included in comprehensive measures to be unveiled by the Financial Services Commission on Sunday.
In coordination with the Ministry of Strategy and Finance, the FSC has mapped out measures for households over the past few weeks.
While check cards have the benefit of preventing holders from spending recklessly as the payment system is based on their bank balances, the nation saw the check card use stay at less than 10 percent of the credit card use.
To promote the public’s check card usage, the FSC has been in talks with the National Tax Service to offer check cardholders more benefits in yearly income tax deduction.
The income tax deduction rate for check cardholders currently reaches 25 percent, while the rate for credit cardholders stands at 20 percent.
The financial authorities plan to raise the rate for check card usage more from the 25-percent level.
In most advanced countries, check card use accounts for about 50 percent of the total payment cards, including credit cards, according to the FSC.
“Amid the situation under which credit card issuers are engaging in heated competition again, there is a possibility that the nation will see the number of credit defaulters surge,” he said.
Aside from the promotion for the public, he said, it is required to instruct credit card companies to increase the portion of issuance of check cards.
As a promotion measure, the FSC has already instructed credit card companies to lower payment service fees charged on retail stores for customers’ check card usage.
Meanwhile, the FSC also plans to lower the maximum level of interest rate offered by private moneylenders from 44 percent to 39 percent per annum.
Furthermore, even people in lower credit standings could see their credit scores inch up if they sincerely pay public utility fees under the comprehensive measures.
According to the Financial Supervisory Service, credit card companies’ combined assets, including insolvent loans, reached 75.6 trillion won at the end of 2010 ― after continued to expand over the past few years ― approaching the critical level of 78.9 trillion won at the end of 2003.
The number of card salespeople also came to about 50,000 as of the end of 2010, up 30 percent from 35,000 a year earlier.
A senior local banker welcomed the chief regulator’s move, saying, “The kind of tough warning is necessary as a preemptive measure. The market should not repeat the 2002-2003 fiasco.”
Card issuers have been fighting a marketing war since last year, vying for a bigger slice of consumer spending as it gets on track to recovery.
The competition led to sharp increases in card issuances and service loans, similar to the last industry crisis, in which the then-largest issuer LG Card and several others had to be rescued with creditors’ money.
The trend is more risky coming on top of already high household debt.
By Kim Yon-se (firstname.lastname@example.org