Unifying Application Requirements for Interest Rate Reduction Requests... Enhancing Transparency in Review

[Asia Economy Reporter Oh Hyung-gil] Financial authorities and the banking sector have begun discussions to improve the operation of the 'right to request interest rate reduction.' This aims to unify the application requirements, which vary from bank to bank, and to make the review and acceptance criteria transparent and reasonable.

According to financial authorities and the banking sector on the 7th, the Financial Services Commission and the Financial Supervisory Service recently formed a task force (TF) with the Korea Federation of Banks and major banks to discuss improvements to the operation of the right to request interest rate reduction.

The right to request interest rate reduction is the authority for borrowers to ask financial companies to lower their loan interest rates when their credit status improves due to employment, promotion, increase in assets, etc.

Since it was legislated in June 2019, it has become more active compared to before, but there have been ongoing criticisms that the application requirements and acceptance criteria for the right to request interest rate reduction still vary by bank, indicating the need to revise the operational standards.

The TF is first reviewing ways to enhance the guidance and explanation of the right to request interest rate reduction to customers.

This includes improving cases where banks incorrectly inform customers that "interest rate reduction may be limited if preferential interest rates were received," or mistakenly explain that "borrowers who have not passed three months since taking out the loan cannot apply for the right to request interest rate reduction," even though applications are possible. They are also considering measures to regularly inform customers about the right to request interest rate reduction throughout the loan period or notify customers whose credit scores have improved.

Additionally, the TF is examining ways to unify the application qualifications and applicable products.

This aims to prevent different standards being applied by each bank and to improve the system so that, in principle, borrowers can apply for the right to request interest rate reduction without special restrictions if their credit status has improved. Previously, when individuals with improved credit scores requested interest rate reductions simultaneously at multiple banks, there were controversies due to differences in acceptance and the extent of rate reductions by bank.

The TF is also discussing ways to operate banks' review and acceptance criteria more transparently and reasonably, as well as including detailed explanations when notifying customers of review results.

Currently, financial companies are required to respond to applicants within 10 business days regarding acceptance, and if they fail to notify, they are subject to fines. However, there are no standards for the format of the notification of review results to customers.

Furthermore, the TF plans to establish standards for banks' statistical aggregation and to regularly disclose related information.