[VIEWPOINT]Seoul's role in promoting plastic

The credit card industry is under fire from the press for several reasons. A recent serial murder case was spurred by credit card debt, and the surge in bad credit is blamed on the relentless and careless issuance of credit cards by the firms. The high interest rates on card loans and the hawking of credit cards on the street have contributed to this anger about the industry.

The government's recent announcement that it will impose direct controls on credit card companies is well in line with the recent criticism. The major points of the new regulations are as follows: Credit card companies have to reduce their cash service and card loan businesses to 50 percent of their total business by 2004; cash service records have to be reported to the Korea Federation of Banks; minors applying for a credit card have to have the approval of the parents and card issuance on the street is prohibited.

I agree with the intentions of the government to develop the credit card industry in a positive direction. But although the direct measures were taken out of good will, they could create new problems. If a limit on credit card loans is imposed, customers who are in need of quick cash have no other place to turn to but the private loan market. Measures that are introduced to weed out people with bad credit could become a reason for increased bad credit.

Different fates await the card companies. Bank-related credit cards can draw on the facilities of all the bank's branches, but pure credit card companies like Samsung Credit Card or LG Card have only about four dozen branches, which puts them at a disadvantage in recruiting new cardholders. These pure credit card companies, that have shown their foreign counterparts a few marketing tricks like specialized credit cards for women are balking at street sales ban, which is against the principles of fair competition.

Since the world economy is functioning more and more globally, the government's regulations should be kept to a minimum. First, in order to prevent minors from getting tarred with a bad credit rating, it should be illegal to issue them cards. These minors are the future of our country, and they should be protected by law. Second, provisions for loan losses should be increased. Those measures will help credit card companies focus on quality rather than quantity.

Third, the credit card companies, that already share information on persons with bad credit ratings, should also share information on those with good ratings for a fee. The Credit Management Fund has such a system by which banks can obtain credit information on new customers, and the system is widely used in lending decisions involving small and medium firms. Fourth, instead of imposing a limit on cash advances, the government should allow card companies to set a limit based on their customer's credit record. If the credit card firm has a higher delinquency ratio than the industry average, the firm should be penalized. The government should closely watch credit card companies for signs that they are engaging in strong-arm or other illegal collection activities.

Recovering trust in credit card companies is a problem that has to be solved by the companies themselves. Credit card companies did their best to expand their businesses, but it was the government's policy that helped Korea's credit card industry bloom. Through the government's restrictions on who could enter the business, seven credit card companies have an oligopoly in a market that has enormous growth potential.

Beginning in 2000, tax benefits were given based on the amount a taxpayer spent using credit cards. Since the change in tax rules, sales made using plastic jumped to 224 trillion won ($173 billion) in 2000 and to 443 trillion won in 2001 compared to 90 trillion won in 1999. On top of all that, the government threatened tax investigations on businesses that did not use credit cards, a move unheard of in other countries.

Surely, credit card companies have a strong ally in the government. In line with the government's policy to promote credit card use, the companies should devise a strategy that would cure the problems of exuberant issuing of cards. It is time for the companies to reflect on what true market economy principles are.

-----------------------------------------------------------------------

The writer is a professor of economics at Seoul Women's University

by Lee Chong-ook