[News in focus] Banks raked in billions with unfair charges
The Financial Supervisory Service carried out an investigation into nine banks in January and February, uncovering a total of 12,279 cases of interest manipulation.
Three of the nine banks — Kyongnam Bank, KEB Hana Bank and Citibank — were found to have manipulated rates. The three banks announced plans to pay back the undue charges from more than 10,000 cases on Tuesday, but the incident will likely trigger class action suits.
Some 12,000 cases came from Kyongnam Bank, a banking unit under BNK Financial Group based in South Gyeongsang and Busan.
The financial watchdog noted that Kyongnam charged unwarranted interest rates worth 2.5 billion won by omitting or lowering loan applicants’ income data.
In doing so, the bank could increase additional rates or the spreads added to the lending interest rate. The interest rate for loans is based on the Cost of Funds Index (Cofix) along with spreads set by banks.
Spreads change depending on each borrower’s credit rating and income level, on top of the Cofix rates that are calculated by averaging the interest rates of bank debentures, certificates of deposit and fixed deposits.
“We will start offering the overcharged interest rate in July,” said a spokesperson at Kyongnam Bank, adding that the bank will improve its systems to prevent a recurrence.
KEB Hana Bank and Citibank released an apology statement and unveiled similar plans, but emphasized that the miscalculation was a mistake.
“Of the 6.9 million loans provided between 2012 and May, 2018, the error occurred in 252 loans and the amount of return stood at 158 million won,” KEB Hana Bank said in a statement.
Corporate clients accounted for 159 cases while household lending took up 34.
KEB Hana Bank is found to have arbitrarily applied the highest rate instead of using the calculated rate.
The affected customers at Citibank are small and medium-sized companies that were charged 1.1 million won more than they should have been.
“We will act on paying back the interest rates in July and revamp systems and employees’ training in order to prevent similar errors.”
Still, the U.S. bank noted that the incident was due to a system error, saying that there are also cases where lower lending rates were charged.
The Financial Supervisory Service will strengthen monitoring in the rate-setting process and carry out follow-up probes on other banks.
Some media reports said that other regional banks could be the target given that Kyongnam Bank was involved in the highest number of cases.
Besides warning and monitoring, the financial regulator didn’t mention other penalties such as fines.
Choi Jong-ku, head of the Financial Services Commission, played down the possibility of punishing the banks at an institutional level.
“The event is not something systematically led by the banks but took place in some branches, which I don’t think warrants a penalty at an institutional level,” he said.
Consumer activist groups feel that more action is needed.
Financial Consumer Agency, a civic group representing financial consumers, said that it will file a class action suit if the compensation plan is not carried out properly.
BY PARK EUN-JEE [firstname.lastname@example.org]
More in Finance
Kim Kwang-soo named as sole candidate to head banking federation
Kospi hits record 2,602.59 as optimism continues after U.S. election result
Dollar deposits jump as punters bet on currency's rebound
Reservation app operator Yanolja to go public next year
KDB says Hanjin KAL funding on the up and up