Banks must act on behalf of clientsIt has been more than 10 years since individual consumers have been allowed to demand that banks cut borrowing rates when their credit profiles improve, whether due to gaining employment, a raise or a promotion - although that rate reduction is limited to credit-based loans and does not affect mortgages or government-sponsored loans for college tuition. Consumers can approach their bank twice a year and the rates should come down between 0.6 and 1.3 percentage points. This system has been in effect since 2002, but not many people know about it, mostly because no bank has ever informed them.
According to the Financial Supervisory Service, the country’s 18 banks informed their clients about the right to have their rates lowered just 46 times from 2008 to last year. They never did it in person, though, instead posting the right on their websites or product leaflets. Hana Bank, Citibank, Daegu Bank and the Export-Import Bank have never publicized the program. Not surprisingly, the reduction was exercised only 3,710 times from 2007 to 2011.
This year, though, was very different. Lendees exercised the right 53,012 times as of August. In the process, consumers saved 212.9 billion won ($198.56 million) in interest payments. The FSS made it compulsory for banks to notify their clients of the program since July last year. Since then, clients have begun to demand to exercise this right. It is pitiful that the financial authorities should need to check and enforce how every bank fulfills its consumer services. Additionally, the financial watchdog should be ashamed that it neglected protecting that consumer right for more than 10 years.
Banks are looked at as a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain, as the old saying goes. What they are mainly interested in is making profit for themselves and not their clients. They hurriedly hike up lending rates when the benchmark interest rate is raised, but drag their feet in bringing deposit interest rates down when the central bank lowers the key rate. They slap on punitive rates as high as 20 percent if clients are late in paying the interest, but they don’t offer any benefits if clients pay off part of their debt early.
Bank practices are different in advanced markets. Canadian banks call their clients and inform them they are eligible for cuts in borrowing rates. They are familiar with putting consumer interests first. These practices can benefit banks and help raise their competitiveness. The local banking industry must change. Instead of rhetoric, they must act on behalf of their clients. Informing them of their rights as consumers should be the first step.