From July, Maximum Interest Rate Drops from 24% to 20%... Credit Card Companies Announce Fee Rate Reduction (Comprehensive)

Shinhan 19.9%, KB Kookmin and Hana 19.95%, etc.
Fee Rate Change Notice Ahead of Legal Maximum Interest Rate Reduction on the 7th of Next Month

[Asia Economy Reporter Ki Ha-young] Starting next month, the statutory maximum interest rate will be lowered from 24% to 20%, prompting credit card companies to announce changes in their fee rates. Since the reduction will be applied retroactively to previous loans, concerns about profitability deterioration are rising.

On the 1st, KB Kookmin Card announced through its personal member fee rate change notice that from the 3rd of next month, the maximum interest rate for short-term card loans (cash services), revolving payment amount installment agreements (revolving), and installment fees will be reduced to 19.95%. The current cash service fee rate ranges from 5.9% to 23.9% annually, but starting next month, it will change to 5.9% to 19.95%. Revolving will also be adjusted from the current 5.6% to 23.6% to 5.6% to 19.95%, and installments from 8.6% to 21.4% to 8.6% to 19.95%.

Hana Card also announced that from the 1st of next month, the cash service and revolving fee rates for individual credit card members will be changed. Similar to KB Kookmin Card, the maximum interest rate for loan products such as cash services and revolving will be lowered to 19.95%.

Shinhan Card, the industry leader, also plans to apply the revised rates from the 1st of next month. For Shinhan Card, the maximum interest rate will be changed to 19.9%. Cash services will be restructured from the current 6.1% to 23.9% annually to 6.1% to 19.9%, revolving from 5.4% to 23.9% to 5.4% to 19.9%, and installments will also be lowered from 9.5% to 20.9% to 9.5% to 19.9%.

Reduction in Statutory Interest Rates Applied Retroactively to Existing Loans

This measure follows the statutory maximum interest rate being lowered from 24% to 20% starting on the 7th of next month. Previously, financial authorities announced the reduction plan to ease the loan interest burden on low-income earners affected by the ongoing low-interest-rate trend and COVID-19.

Credit card companies have decided to apply the reduced statutory interest rates retroactively to existing loans. Although there is no obligation under the Standard Credit Transaction Terms to apply retroactively, they voluntarily chose to do so. As a result, the profitability of credit card companies is expected to be impacted. According to the Credit Finance Association, as of April, among users of cash services from seven major credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana), the proportion of those subject to interest rates exceeding 20% annually reached up to 56.17%. For long-term card loans (card loans), the proportion subject to interest rates exceeding 20% also reached up to 22.51% depending on the card company.

An industry official said, "Starting next month, as the maximum interest rate is lowered, we are informing customers accordingly," adding, "Since the maximum interest rate cap is 20%, it is expected that each card company will apply fee rates autonomously within the 20% limit."