New rules on interest rate loweringNew rights have come into effect for borrowers with changes to the laws.
According to the Financial Services Commission (FSC), the legal right of consumers to ask lenders to lower interest rates on a loan went into effect Wednesday.
In fact, borrowers have been able to ask for the lowering of a loan’s interest rate since a change in regulations in 2002, starting with banks before including other financial institutions like insurance companies. But that right didn’t become law until Wednesday.
Under the new law, banks and financial companies must inform borrowers from the signing of a loan that they have the right to lower interest rates when possible. Those that fail to do so will be faced with fines of up to 10 million won ($8,500).
Lenders have 10 days to respond to requests for lower rates, whether they come via phone, written statement, text messages, email or fax.
Lenders will have to save all the related data including the request and credit evaluations.
Conditions that allow a lowering of an interest rate on a loan include increases in a borrower’s personal wealth. Corporate borrowers can request lower interest rates when their financial situations improve or when their credit ratings improve.
Since the beginning of this year, borrowers have been able to request lower interest rates from banks or financial companies through online channels. However, they would have to physically visit the companies to sign contracts.
The financial authority said it is working on eliminating that step. The new system will likely to start in November.
“With the fourth industrial revolution era, there are growing calls for changes from the financial industry,” said Sohn Byung-doo, vice chairman of the FSC on Wednesday during a ceremony celebrating the coming into law of the new customers’ rights. “The ultimate change is in the business model that put forth the needs of consumers,” he added. “And financial companies that fail to actively address the demands of consumers, they will inevitably fall behind.”
Representatives of Kakao Bank, who attended the event, said it will provide a service where it sends out a notification to customers whose credit scores have been elevated so that they can request lower interest rates. The online bank said it had a trial run last month in which the bank informed 14,000 customers that they were eligible for lower interest rates. That service will start in the third quarter.
Kakao Bank also said it is developing technology to offer the same alerts to customers whose incomes have gone up. Currently to prove that one’s income or wealth have increased, borrowers have to submit documented proof to the bank to be eligible for a lower interest rate. The new technology allows the online bank to have access to the customers’ financial data, including data from public institutions like the National Tax Service.
Samsung Fire & Marine Insurance said it is currently working on a system through which customers can make requests for lower interest rates through their mobile devices.
According to the government, there were 171,000 requests made last year for lower interest rates and an average 0.99 percentage points were shaved off. This resulted in a savings of 470 billion won in interest payments.
BY LEE HO-JEONG [email@example.com]