[Why&Next] Household Debt Management Collusion? ... Banks Feel Unfairly Accused

The Fair Trade Commission (FTC) is expected to reach a conclusion this month regarding suspicions of collusion among banks in managing household debt. This comes about 11 months after the FTC sent review reports to each bank in January this year. Notably, this is the first case since the amendment of the Fair Trade Act, which allows information sharing alone to be considered 'collusion.' Depending on the outcome of this case, it could also impact other industries currently under the FTC's scrutiny, such as telecommunications and alcoholic beverages, drawing close attention from the entire industry. Banks have stated that if the case is concluded as 'collusion,' they are prepared to take administrative litigation measures.

According to the financial sector on the 12th, the Fair Trade Commission plans to hold two plenary meetings on the 13th and 20th to decide on sanctions such as fines regarding suspicions of collusion on the Loan To Value (LTV) ratios among the four major banks (KB Kookmin, Shinhan, Hana, and Woori).

The FTC believes that the four major banks exchanged LTV information for approximately 7,500 districts nationwide and lowered the LTV ratio by around 10 percentage points to limit loan amounts. When the LTV is set low, homebuyers need to take additional loans such as credit loans to purchase homes, and the FTC claims that banks profited from interest income through these additional loans.

The banks have strongly denied these allegations. While they admit to exchanging LTV information, they argue it was solely for risk management purposes, and collusion is impossible because each bank has different criteria for calculating additional and preferential interest rates. A representative from a commercial bank said, "LTV is a policy tool for managing household debt, and it is unreasonable to manage household debt without sharing LTV information." He added, "If information exchange is recognized as collusion, banks will no longer be able to share real estate LTV data, making household debt management difficult." Since receiving the review report from the FTC in January, the banks have sent rebuttal statements seven times.

The key issue is whether the banks exchanged non-public information to gain unfair profits. The LTV information pointed out by the FTC refers to the LTV setting ratios by region and housing type. Although this information can be obtained with some effort, it is not publicly available to the extent that it can be found through a simple internet search, so whether this LTV information can be considered non-public is crucial. Another issue is whether the banks gained unfair profits by using this information. Since setting a lower LTV reduces banks' interest income, it is difficult to see that banks gained unfair profits.

Inside and outside the industry, the prevailing view is that the FTC's approach is an 'overreach.' In 2012, the FTC investigated six major banks for colluding on the certificate of deposit (CD) rates, which serve as the basis for loan interest rates, but the case was closed due to insufficient evidence. Because of this, there are complaints within the industry that the FTC's excessive sanctions increase market uncertainty.

However, since the amendment of the Fair Trade Act in 2020, there is a legal basis to consider the exchange of sensitive transaction-related information among companies as 'collusion,' making it difficult to predict the conclusion.

The Financial Services Commission has drawn a line, stating that the sharing of LTV information among banks was not an incident involving administrative guidance from authorities and has expressed discomfort over the FTC not consulting or sharing the situation. This has created an impression of conflict between the two agencies.

An FTC official said, "After two deliberations this month, a conclusion is expected within the month," adding, "We will carefully consider the banks' claims before making a final decision."

Another representative from a commercial bank said, "The financial authorities tell us to manage household debt, but the FTC calls this collusion, so we don't know which to follow," adding, "If the FTC ultimately concludes it is 'collusion,' it is not just a matter of fines worth hundreds of billions of won; for banks, it would mean being unable to carry out government financial policies."