Business is businessIn a meeting with ordinary citizens, President Lee Myung-bak recently expressed dismay after learning that financial lending units of large conglomerates slap annual interest rates of 40 percent or more on some of their loans.
“I thought only black-market lenders commanded such high interest rates,” he lamented.
Hearing stories of suffering from financially strapped residents, the president bemoaned the fact that the low-income segment of society is experiencing huge difficulties while large companies rake in trillions of won in revenues off loans.
Such comments are understandable, as the president is trying his best to reach out to the public. He also might demand that large companies play a greater role in society and help ease inequalities in wealth.
As a response to the president’s rebuke, financial capital companies will likely make some type of gesture and lower their lending rates. The Financial Supervisory Commission also said it will review the interest rates charged by capital companies, which provides home, auto and personal loans but aren’t classified as banks.
Capital companies were created to provide another lending source for consumers who don’t classify for other types of loans. The companies raise funds to lend by issuing corporate bonds and commercial papers yielding interest rates of around 10 percent annually.
Because of the expenses they incur raising funds and their high-risk client base, companies charge higher interest rates than banks. Consumers with poor credit scores or low salaries therefore are forced to accept high rates if they want to borrow money. They essentially have nowhere else to turn.
Ideally, people could borrow money at low rates regardless of their history or income level. It is also possible to coerce large companies to support people who are struggling in the aftermath of the global financial crisis.
But too much emphasis on consumers can create unintended side effects and harm the country and economy in general.
If the government gets too involved, we could see a situation in which private and corporate spending ebbs.
Capital companies might lower interest rates with some arm-twisting from financial officials. But in the long run, it won’t help consumers. These companies would be more selective about who they lend to, as they wouldn’t make enough money to cover the risk. That would send many borrowers to illegitimate and shady lenders.
It is good to be compassionate when the public is suffering, but in the end, business is business.