Credit Card Spending Ceiling Is Lowered

The cash advance service fee currently reaching a high level of 22 to 23 percent is expected to be low as much as 18 to 19 percent beginning from July. Additionally, when more than five hundred thousand Won is paid by an credit card, an identification paper should be shown, and the daily maximum cash advance will be much reduced to from current five million Won to two million Won.

In addition to this, the cash advance-withdrawing limit will be determined through affordability such as cardholders` income or properties and also their credit rating.

The government and the Millennium Democratic party (MDP) held a government-to-party consultative meeting on May 23 and agreed on to formulate `composite credit card measures` mainly based on the revisions, and to put them into practice beginning July.

Street vender marketing, house-in-house sales, and betting presents promotions are prohibited to prevent the side effects due to the excessive use of credit cards, according to the composite measures.

Additionally, only when members submit in a written form for a new card, the spending ceiling will be allowed after considering the affordability of the members such as income and properties. In this case, the Financial Supervisory Commission (FSC) will supervise the proper state of payment capacity in the future so far determined unilaterally by the card companies.

The FSC will also induce the fee rate of the credit card cash advance service to below the level of the lowest rate applied now (around 19.9%).

Accordingly, the rates of the cash service advance fee now hovering on annual 22 to 23 percent will certainly fell to the 10 percent range.

Director-general of the second surveillance policy bureau of the FSC Lee Doo-Hyung said, `We have a plan to raise the application percentage of the credit rating so that the better credit rating the customers have, the less fee on cash advance service they may pay.`

Especially, when classifying the grade of cardholders, the current pyramid type where 80 to 90 percent of the cardholders are concentrated in the lowest layer will be readjusted to a diamond type structure where the middle group took the share of the majority of cardholders.

Additionally, the government has a plan to introduce an American styled `liability limitation clause`, in which the cardholders` liability may be limited to a maximum of fifty dollars even if there are illegal use of credit cards such as stolen or lost cards.

As an alternative to counter the side effects of the excessive use of credit cards, `the direct payment card` that is cleared only when some deposit remains in accounts will be promoted.

A team leader of the FSC Kim Byung-Tae remarked, `We will consult with the tax office of the Ministry of Finance and Economy to determine the income exempt ratio of the direct payment card till the end of this year.`

Dong-Won Kim Young-Hae Choi daviskim@donga.com yhchoi65@donga.com