Ridiculous bank commissionsInterest rates are at an unprecedented low level. The benchmark short term interest rate is fixed at 1.5 percent. Mortgage-backed loans can be borrowed at below 3 percent and credit loans at around 4 percent. But when they are repaid before their maturity, borrowers have to pay the same unchanged rate of 1.5 percent. The bank commission rate is the same as when the key interest rate hovered at 4 percent in the early 2000s. According to banks’ report for parliamentary questioning, commission payments to banks for cancellation of loans totalled 171 billion won ($144 million) in the first seven months of this year, up 31 percent from a year ago. Banks have ended up profiting from customers’ transitions of loans as they changed to loan programs reflecting lowered rates.
It is up to banks to set commission rates. But why do they rake in the same profit while the guideline interest rate has come down? That’s incomprehensible. Banks are resisting the market mechanism. The application of service rates is so unfair. Banks levy an annual commission rate of 1.5 percent regardless of the loan type and credit level of the borrowers. The rates are unchanged for loans of fixed and floating rates or collateral- or credit-backed ones. Even financial authorities are questioning whether banks have collaborated in setting the rates.
But banks seem to not be bothered by the criticism. The bank federation held a seminar to discuss customer complaints over the fees for loan cancellation earlier this year. The federation recommended that loans of floating rates should not demand any commission. It also suggested that banks not charge any extra fees for ending mortgage-backed loans. Only one bank - the Industrial Bank of Korea - has been applying the recommendation.
The Financial Services Commission recently said it won’t interfere in banks’ interest rates and commissions. But the government must step in if the market mechanism does not work. It must investigate whether the fees for loan cancellation are just to ease the customer burden and bolster fair competition. JoongAng Ilbo, Sept. 11, Page 30