"Variant Kkeokgi vs Legal Cross-Selling"…Controversy Over Financial Product Sales to COVID Loan Borrowers

Assemblyman Kim Han-jung: "One in Three COVID-19 Loans Experienced 'Byeonjong Kkeokgi'"
Banking Sector: "It's Not Byeonjong Kkeokgi. Legitimate Cross-Selling with Reason"

A small business owner receiving a loan consultation at Shinhan Bank in Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Park Sun-mi] Small business owners struggling due to the novel coronavirus infection (COVID-19) are reportedly exposed to a form of 'bundled sales' disguised as financial support, where financial products are forced upon them as a condition for receiving financial aid. On the other hand, banks argue that it is unfair to label legitimate cross-selling practices as coercion.

According to the 'Self-inspection Results of Commercial Banks Regarding COVID-19 Loans' submitted by the Financial Supervisory Service to Kim Han-jung, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, among the 677,000 COVID-19 first and second round loans executed between April and June this year, 228,000 loans were accompanied by subscriptions to other financial products. This accounts for 34% of the total loans. The most common was credit card issuance, with 170,000 cases. There were also 69,000 cases of savings and deposit subscriptions, and 6,218 cases of insurance and investment products that could result in principal loss if canceled early.

The bank with the highest number of bundled sales was Industrial Bank of Korea (IBK) with 96,000 cases (42.1%). This was followed by Hana Bank with 36,000 cases (15.6%), Woori Bank with 29,000 cases (13%), NongHyup Bank with 15,000 cases (6.5%), and Shinhan Bank with 13,000 cases (6.1%).

"Legitimate cross-selling cannot be definitively labeled as coercion"
"Many customers request card issuance to withdraw loan funds"

Banks defended their practices as legally permitted sales strategies known as cross-selling. A representative from Bank A stated, "Under current law, coercion is defined only when a financial product exceeding 1% of the loan amount is forced within one month of receiving the loan," adding, "Among cross-selling, credit card issuance was the most frequent, but credit card issuance is not included in the definition of coercion."

Furthermore, considering the financial difficulties of customers applying for COVID-19 loans, banks explained that they recommended tailored products suitable for their needs, and most subscriptions were made based on customer choice. A representative from Bank B said, "More than 80% of the deposit products offered to COVID-19 loan customers were low-burden products such as subscription savings or the Yellow Umbrella Mutual Aid," expressing, "This was also a proposal rather than coercion, so there is a sense of unfairness."

There was also an explanation that the fact most bundled sales involved credit cards was a decision based on customer needs. A representative from Bank C said, "Many COVID-19 loan customers are not main account holders," adding, "To withdraw the loan funds deposited into their accounts, a card is necessary, and many customers preferred to receive a credit card if possible." In other words, the increase in card issuance was due to customer demand.

The banking industry maintains that since the interest rates applied to COVID-19 loans do not offer preferential rates based on subscriptions to other products, customers did not need to subscribe to other financial products if they did not wish to. They deny the claim by Assemblyman Kim that commercial banks exploited small business owners' fears of loan rejection by cleverly using government public funds as bait to sell products.

In response, Assemblyman Kim's office stated, "The very occurrence of bundled sales in loans involving government funds is problematic," pointing out, "For example, in the case of credit card issuance, customers pay annual fees, so banks are earning profits from government funds."

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