Banks' 'Unfair' Protest Over Criticism of COVID-19 Loan 'Forced Bundling' (Comprehensive)

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

[Asia Economy Reporter Park Sun-mi]"Bundling various financial products to COVID-19 loan borrowers who are in poor financial condition is a form of 'variant coercion.' Strict measures are necessary." (Kim Han-jung, Democratic Party of Korea lawmaker)

"Recommending and proposing customer-tailored products cannot be defined as 'coercion.' Legally, cross-selling is allowed." (Bank A)

Concerns have been raised that small business owners struggling due to the novel coronavirus disease (COVID-19) are being exposed to 'variant coercion,' where financial products are bundled as a condition for receiving financial support. On the other hand, banks argue that it is unfair to classify legitimate cross-selling itself 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 Financial Services Committee from the Democratic Party of Korea, among 677,000 COVID-19 first and second phase loans executed from April to June this year, 228,000 loans were accompanied by subscriptions to other financial products. This accounts for 34% of all loans. The most common was credit card issuance with 170,000 cases. There were 69,000 cases of savings and deposit subscriptions, and 6,218 cases of insurance and investment products that could incur principal loss upon early termination.

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 conclusively defined as coercion"
"Many customers request card issuance to withdraw loan funds"

A small business owner receiving a loan consultation at Shinhan Bank in Seoul. Photo by Moon Honam munonam@

Banks defended the practice as cross-selling, a legally permitted sales strategy. A representative from Bank A stated, "Under current law, coercion is defined only when a financial product exceeding 1% of the loan amount is subscribed 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 scope of 'coercion.'"

Furthermore, considering the difficult financial circumstances of customers applying for COVID-19 loans, banks explained that they recommended and proposed customized products accordingly, and most subscriptions were made based on customers' choices. A representative from Bank B said, "More than 80% of 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 products were credit cards was a decision based on customers' 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 be issued a credit card if possible." In other words, card issuance increased due to customer demand.

The banking industry stated that since preferential interest rates are not applied to other product subscriptions linked to COVID-19 loans, customers did not need to subscribe to other financial products if they did not want to. They denied the claim by lawmaker Kim that commercial banks used government public funds as bait to cunningly exploit small business owners' fears of loan rejection to sell products.

In response, Kim's office pointed out that the very occurrence of product bundling in loans involving government funds is problematic, noting that in the case of credit card issuance, customers pay annual fees, so banks are earning profits from government funds.

Kim emphasized, "An investigation into the subscription status of financial products within two months before and after government COVID-19 loans, such as proxy loans for the Small Enterprise and Market Service's management stabilization funds and guarantee products related to COVID-19 from Korea Credit Guarantee Fund and Korea Technology Finance Corporation, confirmed that commercial banks are selling products using government public funds as bait," adding, "It is a serious problem that they cunningly exploited the fears of small business owners worried about loan rejection to boost their own performance.”

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