In 2005, the consumer financial crisis broke out in Taiwan, which was also known as the double-card crisis because the crisis mainly came from the two types of card debt (credit cards and cash cards). The crisis had the following aspects: firstly, more than 400,000 cardholders are unable to repay their double-card debts. The improper collection of debts leads to social crimes such as theft and robbery, and even lead to suicide by some debtors'. Secondly, the overdue rate and default rate of financial institutions rose sharply, and some financial institutions almost went bankrupt due to large losses. Thirdly, consumer spending and economic growth slowed as a result of the debt crisis.
After reviewing the development experience of consumer finance in Taiwan, this report analyzed the reasons of the double-card crisis from multiple perspectives, including from the perspective of regulators, financial institutions, debtors and third-party institutions:
- Before the crisis, financial regulators failed to nip the incipient double-card crisis in the bud, and instead made decisions based on public opinion that exacerbated moral hazard and ultimately aggravated the crisis.
- Under market competition, financial institutions pursued high profits while ignoring risks, by over-issuing cards and over-extending credit to consumers.
- Debtors have the problem of excessive consumption and long-term use of short-term debt, leading them into a debt trap under high borrowing rates.
- Third parties such as marketing and debt collection contributed to the crisis.
After the outbreak of the crisis, the regulatory authorities in Taiwan strengthened their supervision measures by raising the card-issuing standard, reducing the borrowing limit and interest rate, establishing a debt negotiation mechanism and personal bankruptcy system, regulating marketing and debt collection, and other measures. As a result, the crisis was basically eliminated three to four years after it occurred. Taiwan's dual-card market has changed dramatically since the crisis. The cash card market has largely disappeared, while credit cards have largely become payment instruments. Revolving credit card loans have shrunk by 80%. The dual card crisis in Taiwan sounded the alarm about adverse developments in consumer finance in the mainland. Learning from the experience and lessons of the dual card crisis in Taiwan can help to promote the healthy and orderly development of the consumer finance market in the mainland.