Financial consumers meek no moreAs 2012 gets under way, memories of the numerous disasters that befell Korea’s financial sector last year are starting to fade into the background. However, the losses sustained by tens of thousands of customers due to the mass suspension of more than a dozen savings banks, not to mention the uproar caused by personal data leaks from financial companies, are experiences that no one wants to see repeated.
Yi Seong-gu, president of the Korea Finance Consumer Federation, a consumer advocacy group, has been working to help consumers of financial products receive all they are entitled to, despite their recent travails. A former high-ranking government official, Yi has been active in the field of regulatory reform and consumer policy since 1994. He previously worked as the director of consumer policy at the Fair Trade Commission before moving to lead the private-sector advocacy group last April.
Yi recently sat down for an interview with the Korea JoongAng Daily to share his views on what will likely emerge as the hot-button issues this year in terms of consumer financial protection, including the new trend of financial consumers demanding their rights be recognized, and how the lack of competition in the financial sector has led to consumers being relatively uninformed.
Q. What do you think will emerge as the most controversial consumer advocacy issues this year?
A. There haven’t been any major regulatory changes for 2012, so we expect a continuation of existing risks for consumers. However, there are problems that could crop up this year. As financial regulators roll out large-scale measures to restructure the credit card market, credit card companies could start removing many value-added services that consumers were promised when they signed up for their cards. Although this might legally be allowed in the contract, such terms could be considered unfair. Moreover, household debt is already a problem. But should the economy deteriorate further, citizens that are already saddled with considerable debt might be subject to disadvantageous loan conditions, as they encounter trouble renewing their loans or paying them back.
Last year was riddled with high-profile incidents in the sector, but financial consumers were more voluble than ever in issuing their demands. There has certainly been a change in perspective. In the past, the Korean public did not see such problems as consumer advocacy issues. Financial consumers played a more passive role and waited for the financial authorities to hand down measures.
But this time, consumers have begun asking more searching questions, such as who should be held responsible. With issues like savings banks selling subordinated bonds with incomplete explanations, more consumers have started demanding accountability from financial companies that raised huge profits without fulfilling their duties.
We are seeing the beginning of a trend in which financial consumers shrug off their passive roles to hold financial companies and regulators accountable for their missteps.
What are some of the current projects the Korea Finance Consumer Federation is pursuing?
Other consumer advocacy groups have been interested in the rights of financial consumers in the past, but they settled for exhorting regulators to strengthen their oversight. The Korea Finance Consumer Federation has begun gathering plaintiffs together to sue financial companies for damages, which is something that expanded from the insurance sector last March. This year’s projects will include tackling the surcharges that credit card companies require customers to pay when they buy plane tickets using the points accumulated on their cards, and our suspicion that securities brokerages manipulate stock transactions by delaying buy or sell orders by a few seconds to give their VIP clients a slightly more favorable price. However, this last issue will be hard to prove.
Financial products can be difficult to understand, and consumers are often not well-enough informed to demand their rights. How can this “inequality of knowledge” be corrected?
I believe this “inequality” .?.?. derives from a lack of competition in the financial sector, compared to, say, the manufacturing sector. Take smartphones. Because Apple’s iPhone and Samsung’s Galaxy series are different products with different features that are locked in competition, they have much to gain from informing consumers about details such as CPUs, RAM capacity, battery life, weight and screen size, the availability of applications, and so forth.
In the financial sector, the products tend to be similar, meaning that companies just follow all the proper regulations and compete through marketing campaigns, not by the merits of the product itself. This is due to the current structure of Korea’s financial industry. Let’s say the government decides the specifics of smartphones down to the last details. In order to sell in the Korean market, all smartphones would have to have screen sizes of a certain width and height, a certain amount of RAM, and so on. Then companies would gain nothing by informing consumers of product details, and would focus on attracting consumers by marketing .?.?. This is similar to what is happening in the financial sector.
What can we do to bolster financial consumer advocacy?
One of the key methods remains stronger oversight. But another way, and the way we are interested in, is to make it easy for the consumer to demand their rights. Oversight tends to be reactionary, and this can lead to financial companies trying anything once and then changing their ways when the regulations catch up. But if we specify that the financial company bears legal responsibility in the terms of the contract, strengthen rules for companies to make all the information available, and make it easy for consumers to demand their rights through lawsuits, mediation or other routes, companies will internally censor ventures that could potentially hurt customers.
By Lee Jung-yoon [firstname.lastname@example.org]
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