Card Loan Disclosure System Changes... Preferred Interest Rates by Card Company to Be Publicized

Standardization of Credit Rating System from the 20th

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[Asia Economy Reporter Ki Ha-young] Starting from the 20th, the different credit rating systems used by each card company will be standardized. Additionally, preferential interest rates applied according to credit ratings will be separately disclosed.

According to the industry on the 17th, the Credit Finance Association plans to implement a new disclosure system that strengthens the existing card loan interest rate disclosure starting from the 20th of this month. This is a follow-up to the "Improvement Plan for Card Company Loan Practices" announced by the Financial Services Commission last December. Although it was originally scheduled to be implemented gradually from April, the schedule was delayed due to the impact of the novel coronavirus disease (COVID-19) on system development.

With this revision, the previously varied credit rating systems of each card company have been standardized. Currently, card companies disclose loan interest rates based on credit rating criteria provided by external credit bureaus (CBs). However, since the actual credit rating is determined by combining the external rating with each company's internally operated standards, there have been criticisms that the disclosed criteria differ from the actual applied criteria. This revision allows the standard disclosure ratings applied by the card industry to be compared with the corresponding ratings from CBs.

Loan interest rates, including preferential rates, will also be disclosed in more detail. Currently, only the average loan interest rate applied to each rating is disclosed. Going forward, disclosure will be divided into ▲base price ▲adjusted interest rate ▲operational price. In other words, the interest rate adjustments such as preferential rates and special promotional discounts will be separated from the base price, and the final interest rate reflecting the adjusted rate from the base rate will be disclosed separately, which is expected to reduce consumer confusion caused by discrepancies between loan interest rates.

With this revision of the card loan disclosure system, financial authorities and the card industry expect the phenomenon of interest rate inversion between credit ratings to disappear. Until now, there have been unreasonable interest rate differences difficult to explain rationally even among customers with the same credit rating, such as offering significantly lower rates to new loan customers while excluding existing customers from discounts.

Opinions on the effect of lowering card loan interest rates are divided. An industry official said, "If credit ratings and corresponding loan interest rates are disclosed in detail, consumers will compare and choose loan products," adding, "This will lead to interest rate competition among card companies, potentially lowering card loan interest rates." Another official predicted, "It is rare for consumers to apply for a new card just because another card offers a lower loan interest rate than the one they currently own," and added, "The outcome of interest rate competition among card companies will depend on how much consumers utilize the loan interest rate disclosures."

This content was produced with the assistance of AI translation services.