"Helping Financial Consumers"... Ruling and Opposition Parties Propose Policies to Ease Interest Rate Burden

A bank counter scene in downtown Seoul. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Song Seung-seop] The political sphere is consecutively introducing policies to ease the loan burden on financial consumers. This comes amid criticism that banks are enjoying a windfall from interest rate hikes as loan interest rates rapidly increase due to the base interest rate hike trend.

On the 10th, according to political and financial circles, the ruling party, the People Power Party, officially proposed a loan refinancing platform policy to the Financial Services Commission. Seong Il-jong, chairman of the People Power Party Policy Committee, urged at the floor countermeasure meeting on the 5th, “The financial authorities should promptly promote the refinancing loan platform business that enables one-stop refinancing loans (loan switching) at a new lending institution without visiting the existing lending institution for the convenience of the people.”

The refinancing loan platform is a system where borrowers can compare interest rates of multiple loan products at once in one place. It allows easy switching to more favorable products, enabling financial consumers to benefit from reduced interest burdens. Refinancing loans are a representative face-to-face system and are only possible at bank counters.

Chairman Seong said, “This project was promoted last year but was suspended due to the financial sector situation,” adding, “Now, with the situation worsening and interest rates rising, it is more important than ever to prioritize helping financial consumers.”

He also urged, “Please quickly gather opinions from the financial sector and swiftly build a non-face-to-face platform that allows consumers to more easily move from high-interest products to low-interest products.”

On the 6th, the Financial Services Commission announced improvements to the interest rate information disclosure system, a pledge of President Yoon Seok-yeol. The FSC shortened the disclosure cycle of the loan-deposit interest rate spread from three months to one month. Since the loan-deposit interest rate spread disclosure is based only on household loans and separately disclosed by credit score brackets, competition among banks on interest rates is expected to intensify. Along with the disclosure system improvement, the interest rate calculation system for loans and deposits in the banking sector will also be improved.

The opposition party voiced the need to introduce a ‘one-stop loan transfer system.’ Yoon Kwan-seok, a member of the Democratic Party of Korea, said at a meeting of the Livelihood Priority Practice Group’s Household Debt Countermeasures Team, “The livelihood economy, hit hard by the triple burden of high inflation, high exchange rates, and high interest rates, is struggling, with consumer price inflation soaring to the 6% range for the first time in about 24 years since the foreign exchange crisis,” and pointed out, “The pockets of ordinary people, lightened by high inflation, are becoming thinner due to high interest rates.”

According to Representative Yoon, the size of household loans reaches 1,753 trillion won, of which 77% are variable-rate loans sensitive to interest rate hikes. There is also a forecast that if the base interest rate rises to 3% by the end of the year, the interest burden will increase sharply by nearly 20 trillion won.

He added, “Rather than artificially controlling the market, the government should allow market principles to operate,” and stated, “The refinancing loan infrastructure and loan comparison platform linkage should be reactivated to effectively induce a reduction in loan interest rates through interest rate competition.” He analyzed that the scope should include banks, secondary financial institutions, mortgage loans, and loans for self-employed individuals in the system.

This trend is expected to continue for the time being. Recently, Lee Bok-hyun, governor of the Financial Supervisory Service, criticized at a meeting with CEOs of commercial banks, “During periods of rising interest rates, the loan-deposit interest rate spread tends to widen, leading to increased criticism of banks’ excessive profit-seeking,” and said, “It is necessary to calculate and operate interest rates based on more reasonable and transparent standards and procedures.”

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