Class-action suit in pipeline against rigged CD ratesA local consumer advocacy group said yesterday it is preparing for a class-action suit in response to banks’ alleged collusion to rig key money-market rates, as suspected rate fixing is presumed to add to households’ debt burden.
The Fair Trade Commission, the country’s anti-trust watchdog, last week launched an investigation into major local banks and brokerage houses over their suspected involvement in rigging rates on the 91-day certificate of deposit (CD), or the benchmark for bank lending rates.
The Financial Consumer Agency said it will accept applications to join the suit from borrowers who believe the alleged rate fixing has caused them financial damage.
A CD is a financial instrument sold by banks and circulated in secondary markets by securities firms. Most bank mortgages are tied to CD rates, raising the chance of higher CD rates contributing to increased debt-repaying burdens for households.
The agency said the suspected rate fixing is estimated to have incurred around 1.6 trillion won ($1.4 billion) in damages for borrowers each year.
Currently, the CD rates are announced twice a day via quotations by 10 local securities firms based on CDs sold by seven banks.
The probe came as the CD rates remained relatively high even as other market rates fell amid the slowing economy and prospects for a rate cut by the central bank.
Household lending handled by local banks and nonbank institutions totaled a record 642.7 trillion won at the end of May, according to data by the central bank.
The probe came as similar investigations are under way in the United States and Britain into several banks, including Citigroup and Barclays, for their alleged involvement in rigging the London interbank offered rate (Libor).