Curbing predatory lending
Savings banks are treading close to predatory lending, capitalizing on increased demand amid the slow economy. According to the Financial Supervisory Service (FSS), 20 of 25 savings banks with a high rate of consumer loans demand interest rates higher than 30 percent per annum regardless of the client’s credit portfolio. They gave loans at 34 percent per annum even to clients with a high credit rating. Most of the banks were acquired by smaller lenders. Only the consumer loan units of large financial groups like KB and Shinhan levied normal rates of between 15.3 percent and 18.6 percent. A lender that slaps an interest rate of 30 percent when the benchmark rate is at 2.0 percent is not a legitimate financial company, but a loan shark.
And lending is growing too fast. Consumer loans at savings banks reached 10.06 trillion won ($9.14 billion) at the end of November, up 3.4 percent from the previous month. The growth is faster than the rise of 1.2 percent at banks and 0.8 percent in credit cooperative banks. Savings banks have been marketing aggressively after they became bigger as a result of mergers and acquisitions. At the same time, victimization of consumers has also worsened.
The FSS last year approved savings banks acquisitions of ailing or smaller lenders. They mostly acquired loan servicing agents that lent recklessly. They were required to keep the rates under 30 percent, but mostly ignored that rule.
Savings banks naturally would demand higher interest rates than banks. But they should differentiate borrowing according to the client’s credit conditions. They should build a credit portfolio if they do not already have one. The financial watchdog also must do its supervisory duty. It has allowed mergers and acquisitions between non-banking lenders to lessen predatory and abusive lending. It must now toughen its supervision so that consumers are not ripped off just because they do not have anywhere else to turn for a loan.
JoongAng Ilbo, Feb. 25, Page 30