Financial Authorities Urge Activation of 'Interest Rate Reduction Request Rights'... Effectiveness Remains Uncertain

Lee Chan-woo, Senior Deputy Governor of the Financial Supervisory Service, held a meeting on the 19th at the Korea Federation of Banks in Jung-gu, Seoul, with vice presidents in charge of loans from eight major commercial banks, urging the activation of the right to request interest rate reductions.

[Asia Economy Reporter Kwangho Lee] As complaints about recent loan interest rate hikes increase, financial authorities have urged banks to activate the 'right to request interest rate reduction.' However, there is analysis that its effectiveness will be limited.

On the 21st, according to the banking sector, Chanwoo Lee, Senior Deputy Governor of the Financial Supervisory Service, held a meeting on the 19th at the Korea Federation of Banks in Jung-gu, Seoul, with vice presidents in charge of loans from eight major commercial banks, stating, "Please make efforts to activate the right to request interest rate reduction so that the interest burden on financial consumers can be eased even slightly during the period of rising interest rates."

Senior Deputy Governor Lee pointed out, "Although the right to request interest rate reduction was legislated in 2019, there are still many shortcomings in its actual operation," adding, "Insufficient information is provided when informing financial consumers about the right to request interest rate reduction, and explanations for reasons for rejection also seem lacking."

He continued, "Recently, financial authorities, together with the banking sector, announced improvement measures in three areas: guidance and promotion, application and review procedures, and disclosure and management," and urged, "Please implement the improvement measures promptly so that more financial consumers can utilize the right to request interest rate reduction and receive benefits."

The right to request interest rate reduction is a right that individuals or companies can exercise to ask banks to lower loan interest rates when their credit status or repayment ability has significantly improved compared to the time the loan was executed. Although application conditions vary by financial institution, they generally include employment, promotion, increase in assets, and improvement in credit score.

However, it is uncertain whether the activation of the right to request interest rate reduction, as demanded by financial authorities, can quell the controversy over the sharp rise in loan interest rates.

This is because banks cannot be penalized even if they do not comply, and the system is focused on existing borrowers, which is expected to continue to be pointed out as a limitation.

In fact, the number of applications for the right to request interest rate reduction has increased significantly every year, but the number of accepted cases falls short. The acceptance rate is known to be around 40% on average.

The number of applications for the right to request interest rate reduction increased from 200,000 cases in 2017 to 910,000 cases in 2020, a 4.5-fold increase, but the number of accepted cases only rose from 120,000 to 340,000, a 2.8-fold increase during the same period.