From November, Card Companies to Provide Revolving Fee Rate Calculation Details... Alternative Product Comparisons Also Available

As of late July, 2.735 million Revolving Users... Carryover Balance 6.67 Trillion KRW
Highest Average Fee Rate in Q2 This Year 18.4%
Strengthening Fee Rate Guidance and Disclosure

[Asia Economy Reporter Song Hwajeong] Starting in November, credit card companies must compare and guide customers to similar products with lower interest rates when recommending revolving payment services (partial payment amount rollover agreements) and provide customers with the calculation details of revolving fee rates. This is expected to expand consumer choice and reduce financial cost burdens.

On the 24th, the Financial Services Commission and the Financial Supervisory Service announced that they have prepared improvement measures for credit card revolving services in collaboration with the Credit Finance Association and the industry, and plan to implement them sequentially from the end of August.

As of the end of July, 2,735,000 people were using revolving services, and the revolving balance (the amount rolled over to the next month when users do not pay the full payment amount on the due date) totaled 6.67 trillion KRW. The number of users increased by 4.8% and the revolving balance by 16.4% compared to the end of the previous year, showing a recent upward trend. Revolving is a financial service with a high average fee rate (interest rate) ranging from a minimum of 14.1% to a maximum of 18.4% in the second quarter of this year. If the revolving balance is not repaid within a short period, the repayment burden increases due to the accumulation of future billed amounts. Revolving is classified as a financial service added to credit cards, not a financial product under the Financial Consumer Protection Act (FCPA), so regulations such as providing explanatory documents do not apply. As a result, even after the enforcement of the FCPA, complaints about incomplete sales due to insufficient explanation during revolving recommendations have continued. Up to July this year, a total of 128 revolving complaints were received by the Financial Supervisory Service.

Accordingly, the financial authorities formed a task force team (TF) with the Credit Finance Association and the industry to prepare improvement measures. The improvement plan includes ▲strengthening the obligation to explain revolving services ▲enhancing fee rate guidance and disclosure ▲promoting the sound use of revolving services.

The obligation to explain will be strengthened so that consumers can fully understand the characteristics of revolving services before signing contracts. From November, a separate revolving explanation document will be established to provide explanations at the level of loan products, and an explanation obligation procedure by recommendation channel will be introduced to ensure the obligation is fulfilled at the recommendation stage before concluding the revolving contract. Additionally, for elderly customers (aged 65 and over) and young adults (aged 19-29) who signed revolving contracts through telemarketing (TM), a happy call will be conducted. Even if telemarketers have made incomplete sales due to insufficient explanations to elderly or young customers, they can decide whether to maintain the contract after receiving additional explanations through the happy call.

Fee rate guidance and disclosure will be strengthened. A Financial Services Commission official explained, "When recommending revolving, by comparing and guiding similar products with lower interest rates, providing the calculation details of revolving fee rates, and shortening the disclosure cycle, we will expand consumer choice and create a voluntary competitive environment among card companies to induce a reduction in revolving fee rates." Card companies will compare and guide interest rate levels and whether rates are variable or fixed for installment payments and card loans, which can replace revolving among financial products and services. By comparing and presenting the interest rates of various alternative products, consumers will be able to select products advantageous to themselves, which is expected to reduce financial cost burdens. Along with this, the calculation details of revolving fee rates will be provided at the same level as bank loan interest rate calculation details, improving consumers' clear understanding of fee rate composition. Rationality and transparency in the calculation process of card companies' revolving fee rates are expected to be enhanced, acting as a factor for fee reduction.

The disclosure cycle for revolving fee rates will be shortened from quarterly to monthly. Consumers will be able to timely check revolving fee rates by card company and individual credit score, and voluntary fee rate reduction competition among card companies is expected to be promoted.

To promote the sound use of revolving services, the minimum payment ratio will be differentiated. Although current terms stipulate that the minimum payment ratio should be differentiated to 10% or more depending on the consumer's credit status, many card companies apply a 10% minimum payment ratio to about 90% of consumers with revolving contracts (based on the average of seven major card companies in the fourth quarter of last year), raising concerns about increasing revolving balances. Going forward, the minimum payment ratio will be raised and differentiated (applied to new revolving contract consumers) considering consumer characteristics such as outstanding loan amounts in other financial sectors and the total number of delinquency cases in the past three months. Along with this, telemarketing for revolving targeting low-credit consumers will be restricted. Also, considering the possibility of expanding credit losses related to revolving as the revolving balance increases rapidly, the Financial Services Commission plans to review additional provisions for bad debt reserves related to revolving.

This revolving-related improvement plan will be implemented as a voluntary regulation, but strengthening soundness standards will be pursued through amendments to supervisory regulations. The shortening of the revolving fee rate disclosure cycle will be implemented from the end of this month, the ban on telemarketing for low-credit consumers will start next month, and the remaining improvement measures will be implemented from November. Strengthening soundness standards is planned for the first half of next year.

A Financial Services Commission official said, "Before the implementation of the improvement plan, the financial authorities have already guided card companies to strengthen their own management to prevent incomplete sales due to insufficient explanations," and added, "We will continuously monitor whether card companies faithfully implement this improvement plan in the future."

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