New cooling-off period for loans

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New cooling-off period for loans

Borrowers can cancel loans within 14 days of the agreement without penalty or commissions under a revised lending system announced Wednesday.

The Financial Services Commission (FSC) and Fair Trade Commission said that the measure is intended to improve consumer protection.

To restrict borrowers abusing the change, the FSC will limit the number of cancellations to two per year from a bank.

Individual borrowers borrowing less than 40 million won ($35,500) in credit loans and 200 million won for a mortgage are entitled to a 14-day cooling off period, within which they can cancel the deal.

“We revised the rule to decrease cases of impulsive borrowing,” said a spokesperson at the FSC.

“Some borrowers sign onto a loan without all the necessary information and sometimes they’re swayed by excessive advertising by the lending companies. So, we needed to roll out the measure to protect those consumers.

“Smaller lenders tended to charge higher commissions for cancelling loan services, so users of those lenders will particularly benefit from the new rule.”

Previously, borrowers who opt to cancel loans had to pay commission fees that amounted to 1.5 percent of loan the loan. Under the new rule, they will not have to within 14 days.

Major banks will adopt the rule by the end of this month. Second-tier lenders such as savings banks and auto financiers will embrace the revised law by the end of this year.

The FSC said that those pulling out of loan contracts will not have their credit rating affected.

The record of the canceled loan will be shared among financial institutions only for a month and then the information will be deleted.

The FSC also changed a rule related to dormant deposits. The regulator said interest need not be paid if an account has had no transaction for five years.

Last year, the financial regulator introduced a service called Account Info through which consumers could find information about dormant bank accounts they may have forgotten about.

Despite the efforts, the FSC said Koreans have 5.4 bank accounts on average, the second-highest in the world after Japan.

Across all banks in the country, as many as 107 million accounts, or about 49 percent, are dormant, making banking statistics inaccurate.

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