FSC tackles loan interestIn response to criticism that interest rates on loans are calculated inconsistently by non-banking lenders, the Financial Services Commission yesterday announced a standard procedure norm for companies to use.
The FSC also introduced a plan to advise non-banking companies such as mutual savings banks and credit cooperatives to notify consumers of interest rates on a regular basis so they are able to compare the rates. This move is expected to gradually lower interest rates on loans by non-banking lenders, where rates are typically about three times higher than those of banks.
“Though credit finance companies and mutual cooperatives have continuously lowered their interest rates on loans, there is still a lingering controversy over a lack of transparency in the process of how they calculate the rates,” said an official from the FSC. Based on the regulator’s data, the average interest rate on loans extended by card companies last year was 15.5 percent, down 3.7 percentage points from 19.2 percent in 2009. “There hasn’t been any principle or standard for non-banking companies to follow when setting their interest rates.
Also, companies had given public notice of their interest rates separately based on their own standards, which made it difficult for consumers to compare the rates, limiting their options on low-interest rate loan products.”
As part of the measures laid out yesterday, the regulator said it will help create an environment where consumers can more actively ask card companies and mutual cooperatives to lower rates should there be changes in credit conditions.
The FSC, Financial Supervisory Service and other related ministries as well as with academic experts and industry officials formed a task force in April to standardize the interest rate system in the non-banking industry in response to rising levels of household debt. Individuals with good credit ratings are able to take out loans from commercial banks at reasonable interest rates; however, those with low credit ratings depend on non-banking companies.
Recent Bank of Korea data showed that household loans by non-banking institutions reached a total of 192.6 trillion won ($171.6 billion) at the end of last year, up from 183.7 trillion won reported at the end of 2011.
“If the interest rate system improves, then we expect overall lending rates to go down gradually,” the official said.
BY LEE EUN-JOO [firstname.lastname@example.org]