What Happens to My Citibank Loan... "You Must Include a Clause Prohibiting Interest Rate Increase"

Citibank Personal Loans Exempt from 3 Major Regulations Even When Transferred to Other Banks
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Citibank Union: "Customer Loan Interest Rate Increase Inevitable"

[Asia Economy Reporter Song Seung-seop] There has been ongoing debate over the consumer protection measures prepared by Korea Citibank. The absence of regulations prohibiting the sale of loan assets has raised concerns about the transfer to other financial institutions and anticipated interest rate hikes. It has also been pointed out that a significant portion of Citibank loans were issued during a low-interest period, which could result in a substantial increase in consumers' interest burdens.

On the 14th, the Citibank labor union held a press conference and protest rally at the Financial Services Commission in front of the National Assembly's Political Affairs Committee with Min Byung-duk, a member of the Democratic Party, stating, "It is clear that the interest rate surcharge on Citibank loan customers will increase," and demanded that "customers' (interest rate hike) concerns must be alleviated."

On the 12th, Citibank disclosed protection measures to prevent consumer damage following its withdrawal from the retail financial business. This plan came about three months after the Financial Services Commission issued an order to Citibank to minimize customer inconvenience.

According to the plan, loan maturity extensions are allowed until 2026. After that, loans can be repaid in installments over a maximum of seven years. Customers can choose between principal and interest installment repayment or equal principal installment repayment methods. To ensure compliance with the consumer protection measures, the bank will establish and operate its own implementation management system. The bank will conduct monthly self-inspections of the implementation status and report the results to the board of directors.

Labor Union: "A Reliable Customer Protection Mechanism Must Be Established"

Despite the preparation of protection measures, the labor union maintains that Citibank customers' loan interest rates may rise. Jin Chang-geun, chairman of the Citibank labor union, pointed out, "The prohibition on the sale of loan assets was not specified in this plan," adding, "Since these loans were issued during a low-interest period, transferring them to other financial institutions could lead to significant disadvantages in the future." There is concern that the acquiring banks may increase the interest rate surcharge.

Currently, Citibank's personal loan portfolio amounts to about 9 trillion won and has been regarded as prime assets with many high-quality customers in the financial industry. Furthermore, financial authorities have decided not to apply borrower-specific total debt service ratio (DSR), household loan volume management, or limit regulations to Citibank's unsecured loan receivables. This is because unsecured loans may face difficulties in refinancing with other banks. If other banks acquire Citibank's unsecured loan borrowers, they can freely increase interest income without providing additional loans, as per the premise of not issuing further loans.

Refinancing is expected to be carried out by providing customers with opportunities to switch through consultations with other banks. It is known that on the 12th, Yoo Myung-soon, CEO of Korea Citibank, mentioned in a message to employees that "we are discussing providing an unsecured loan refinancing program through partnerships with other commercial banks."

Regarding this, Chairman Jin emphasized, "If there is no reliable customer protection mechanism, it is clear that customers will suffer financial losses due to the transfer after one year," and stressed, "Since discussions with financial authorities regarding partnerships with other banks are still ongoing, it is necessary to include a special clause prohibiting interest rate surcharge increases when transferring unsecured loan customers."

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