Banks charge stratospheric sums for cash advancesSome foreign banks operating in Korea are raking in excessive profits from their cash advance services by imposing exorbitant interest rates on borrowers, industry data showed yesterday.
Nearly 80 percent of Koreans using cash advance services with credit cards issued by foreign banks in September paid interest rates of between 24 and 30 percent, the data showed.
About 78 percent of cash advance users at Standard Chartered Bank Korea paid rates above 24 percent last month. The same held true for 76 percent of Citibank Korea’s customers.
Standard Chartered Bank Korea had no customers who used the cash advance service with an interest of 10 percent or less. At Citibank Korea, 0.86 percent of its customers were cash advance users with low interest.
The rate is higher than the industry average among local credit card firms, where users pay average rates of 22 percent, market watchers said.
The legal ceiling on interest rates for private loan companies in Korea is 39 percent.
As most of those who borrow cash have low credit ratings, the jump in those paying excessive interest rates is likely to worsen overall household debt, market watchers said.
Already Korea’s household lending is at an all time high of more than 900 trillion won ($815 billion).
“Despite government efforts to battle people’s mounting debts, foreign banks seem to be reluctant to act socially responsible,” said Kim Hae-chul, an official at the Credit Finance Association.
The financial regulator said in August that it will put forward measures to curb revolving credit offered by local credit card companies as part of a broader move to revamp lending practices. Revolving credit allows users to roll their debt over to the following month until it is finally paid off.