Interest Rate War Looms

A Finance Ministry official said Friday that a review is under way of interest rates charged by some lenders and the effect on consumers, especially lower-income households.

President Kim Dae-jung told ruling Millennium Democratic Party leaders Thursday to find ways to curb high interest charges.

Mr. Kim's instruction underscored the bafflement and outrage held by many about the high rates of interest charged by private money lenders, credit card companies and often unregulated financial firms. Earlier in the week, private citizens organizations and labor unions held a public hearing, where they called for revival of a statute setting maximum rates for all types of transactions.

But restoring the legislation may itself proved to be a difficult task. "The constitutional court recently ruled that scrapping the law was constitutional," the ministry official said, "and we need to understand what kind of distortions there will be in the capital market, which the private lending market is a part of, when we bring back the law at this point."

In presenting the government's position, the official referred to the huge gap between some of the rates that are charged by lenders and the potential legal maximum. The interest rate on loans can reach as high as the annual equivalent of 360 percent in the private lending market and credit card companies charge up to 29 percent on payments in arrears. "The maximum rate of 25 percent must be brought back immediately and in a form specified in the law," attorney Kim Nam-keun said recently.

But a private money lender in Seoul said, "There is always a way around it."

The statute, enacted in 1962, made it unlawful to charge interest above 40 percent. The decree would later lower the maximum to 25 percent. Lenders found guilty of usury were punishable under the fair trade laws and criminal law. The law was abolished in January 1998 in the wake of the nation's financial crisis.

by Song Sang-hoon