Maximum Interest Rate 10% Per Year Bill... Industry and Authorities "Oppose" Saying It "Blocks Ordinary People's Money Flow"

Gyeonggi Province Governor Lee Jae-myung Sent Letter to Ruling Party Lawmakers on the 7th
"We Must Lower the Maximum Interest Rate," Appeals
Loan Industry Average Interest Rate 17.9% "If Rates Drop, We Must Close"
Authorities Also Express Negative Stance

[Asia Economy Reporter Kim Min-young] The financial sector is strongly opposing the political push to lower the statutory maximum interest rate to below 10% per annum. The lending industry and secondary financial institutions, which are directly affected by the maximum interest rate, warn that discussions about lowering interest rates could increase uncertainty in the market, calling it "unrealistic." Critics also argue that policies intended to help low-income people could end up cutting off their access to funds.

According to sources in politics and finance on the 11th, Gyeonggi Province Governor Lee Jae-myung sent a letter on the 7th to all 176 ruling party lawmakers requesting the reduction of the statutory maximum interest rate for lending businesses from 24% to 10%. Governor Lee appealed, saying, "In an era of low interest rates and low growth with a base rate of 0.5%, a 24% interest rate is extremely high," and added, "It is time to wipe the tears of those struggling under unbearable debt after desperate efforts to survive."

Political Circle Proposes Bill to Set Maximum Interest Rate at 10%

On the same day, Kim Nam-guk, a member of the Democratic Party of Korea, introduced a bill to amend the Lending Business Act and the Interest Limitation Act to lower the maximum interest rate to 10%. Currently, the maximum interest rate is 27.9% under the Lending Business Act and 25% under the Interest Limitation Act, but both are effectively set at 24% according to enforcement ordinances. Earlier, on the 4th, Moon Jin-seok of the same party also introduced a bill to lower the maximum interest rate to 10%. On June 1, shortly after the 21st National Assembly convened, Kim Cheol-min of the Democratic Party proposed a bill to set the maximum interest rate at 20%.

This movement is based on the rationale of reducing the interest burden on low-income people. However, the consensus is that it could deprive them of opportunities to borrow money through formal channels. Currently, the loan approval rate for lending businesses and savings banks is known to be below 10%. This means that only one out of ten loan applicants is approved.

Industry: "Comments Made Without Understanding Reality"

Governor Lee Jae-myung of Gyeonggi Province [Image source=Yonhap News]

The lending industry is under urgent pressure. As of the end of last year, the average loan interest rate in the lending business was 17.9% (21.1% for unsecured loans, 13.8% for secured loans). Lowering the maximum interest rate to 10% is tantamount to telling them to shut down. Two top-tier companies stopped offering unsecured loans last year. A lending industry official pointed out, "While a 20% maximum interest rate can be justified as being equal to Japan's maximum rate, 10% is a number without any basis."

Savings banks are also dissatisfied. One official said, "Following the financial authorities' directive to pioneer the mid-interest rate market of 15-19%, we have been actively selling mid-interest loan products, but if the maximum interest rate drops to 10%, unsecured loans will disappear and only corporate loans will remain." The average unsecured loan interest rates at major savings banks range from 13.71% to 18.58%.

The credit card industry, which had been watching from the sidelines, can no longer remain silent. As of last month, the card loan interest rates of five card companies (Shinhan, KB Kookmin, Samsung, Hyundai, Woori) ranged from 13.32% to 16.99%, and major capital companies' rates ranged from 12.02% to 19.31%. All secondary financial institutions have unsecured loan interest rates exceeding 10%, so if the maximum interest rate falls below 10%, it would effectively mean operating illegal loan businesses.

Financial Authorities: "Premature"

The National Assembly and financial authorities have also expressed negative views. A review report by a National Assembly expert on Kim Cheol-min’s bill stated, "If the maximum interest rate is lowered, borrowers with low credit ratings who have no choice but to use high-interest loans may face reduced borrowing opportunities and could be driven to illegal private lending markets." The Financial Services Commission also said, "It is necessary to comprehensively consider trends in the funding needs of low-income people, the business conditions of high-interest financial sectors, and the supply of policy financial products for low-credit borrowers to decide the timing and method of any reduction to avoid side effects that restrict access to funds for low-credit groups." The Bank of Korea and the Korea Federation of Banks also warned that borrowing opportunities for low-credit groups could be reduced.

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