FSS won’t probe CD rates

The Financial Supervisory Service yesterday turned down an investigation request made by consumers earlier this month to look into allegations that banks and securities firms fixed certificate of deposit (CD) interest rates and in return reaped huge profits.

The request was made at a time when the Fair Trade Commission had also been looking into the same allegations since last year without success.

“We had an in-depth discussion on what the requestor has claimed, over suspicions that banks imposed unfair CD interest rates and rigged them,” the FSS said in a statement. “But we came to the conclusion that there is a lack of detailed facts on specific damages that have been caused by financial institutions’ illegal or unfair business handling.”

The FSS also stated that the FTC investigation is ongoing and there is a need to “wait for the results to come out.”

“We came to a conclusion that it isn’t right for the FSS to launch an investigation into the case,” the regulator said.

In July 2012, the country’s antitrust agency first raised suspicions over alleged fixing of CD rates, which is the benchmark lending rate for bank loans. However, consumers have criticized the FTC for a lack of progress in its investigation.

The Financial Consumer Agency then submitted a document to the FSS earlier this month claiming that the FSS should launch an independent probe into the case, arguing that consumers that received loans based on CD rates paid 4.1 trillion won ($3.69 billion) in excess interest from January to June 2012.

The consumer agency’s request was the first such petition filed with the FSS under a new policy adopted by the regulator in May that permits consumers to raise financial allegations and request an FSS probe.

The policy is in line with the Park Geun-hye government’s focus on protecting the rights of financial consumers and weeding out unfair financial practices.

Under the policy, an application can be submitted to the FSS if it has the support of 200 or more people over the age of 19. The FSS has created a special deliberation committee consisting of four outside experts and three internal officials to be responsible of reviewing and approving requests.

“In Korea, banks rely heavily on making profit from interest rate margins and we suspect that they imposed higher rates on loans even though average market rates went lower,” said an official from the consumer agency.

Meanwhile, the Financial Consumer Agency is expected to submit a letter to the FSS challenging yesterday’s decision.

“We are asking the FSS to look into the suspicion that banks gave loans to individuals and companies at irrationally high CD interest rates because we feel manipulating the rates is possible under current financial mechanisms,” said Cho Nam-hee, head of the agency. “We will raise an objection.”

BY LEE EUN-JOO [angie@joongang.co.kr]