Stores limit payment options
Chung Soon-im, a 48-year-old housewife, was shocked when she went shopping at Lotte Mart’s branch in Seoul on Sunday.
She asked the person at the cash register to swipe her credit card so she could pay for her groceries using an interest-free three-month installment plan. But the employee told her this was not possible.
“I didn’t know retailers had stopped accepting interest-free installment payments,” Chung said. “This will make life harder for a lot of people.”
Retailers stopped accepting such payments on Jan. 1 due to the implementation of a revision to the financial law that was passed last month.
But few consumers were notified of the change. As a result, cash registers at discount stores, airport ticket booths and various other sales outlets have been dealing with a steady stream of confused and disappointed customers for the last seven days.
Until last year, credit card companies covered most of the interest payments themselves. But the revised law requires them to split the cost down the middle with other businesses including telecommunications companies, airlines and major retailers.
Most of these see this as an unacceptable burden on top of promotional and other costs, as well as the higher commission rates they have been forced to pay credit card issuers since last year.
Due to rising public anger sparked by the “Occupy Wall Street” movement last year, the government ordered major retailers to pay higher rates of 1.9 percent to 2.1 percent - up from 1.5 percent to 1.7 percent - to the card companies. At the same time, smaller businesses like restaurants had their commission fees reduced from 1.8 percent to 1.5 percent.
The interest-free installment plans were estimated to cost major retailers and other businesses up to 60 billion won a year ($56.42 million).
“These kind of payment?plans are just promotional schemes offered by credit card issuers to attract new customers,” said an employee at a major retail chain in Seoul. “Why should big retailers burden the cost?”
The Financial Service Commission estimates that credit card companies spent 1.2 trillion won?on such interest-free payment plans using their credit cards last?year, or about one-quarter of what they spent on marketing and promotional events.
Consumers spent 46 trillion won on such installment-based payments in 2009, 58 trillion won in 2010 and 68 trillion won in 2012. Last year, total credit card payments amounted to 312 trillion won.
On average, credit card companies charge consumers 2 percent for bills split over two months and 4.3 percent for those paid in three installments.
The financial regulators have taken flak for sewing confusion and conflict. The purpose of revising the law was to stabilize the industry by easing competition in the credit card market while normalizing commission rates. But the Financial Supervisory Service has been accused of not properly considering the negative side effects of the amendment as consumers pay the price of the growing conflict between retailers and the card issuers.
“This tug-of-war is only hurting those who can’t always afford to pay one lump sum as they struggle to make ends meet,” said Cho Yeon-haeng, head of the Korea Finance Consumer Federation
By Sohn Hae-yong, Lee Ho-jeong [firstname.lastname@example.org]
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