GOV’T MULLS HIKING LEGAL MAX INTEREST RATE

[Anchor Lead]

2 years ago, the government lowered the annual legal maximum interest rate to 20% in a move to ease the burden of those with poor credit scores suffering from high interest rates. However, private lenders and savings banks are suspending their loans as the cost of financing has increased significantly ever since the rise in the benchmark interest rate. The government has therefore decided to consider raising the legal maximum interest rate again.

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This top-ranking private lender suspended loans a month ago. The firm refuses to provide consultations by phone or receive online loan applications, and just refers its potential customers to financial companies with more complicated terms and conditions.

[Soundbite] (Call Center Staff (VOICE MODIFIED)) : "We do not give out loans anymore. We would like to refer you to savings bank that is affiliated with us."

The situation is similar at some savings banks as well. This could push people with poor credit scores but in need of cash to borrow from illicit private lenders. This is happening because interest rates at commercial banks are rising. The lending sector says interest rates on loans should surpass the annual legal maximum interest rate of 20 percent given the commission fees and delinquency rates in addition to the loan interest rates applied at commercial banks. In response, the government has decided to consider raising the legal maximum interest rate again. This can be done, largely, in two ways by raising the rate to the 2021 level of 24 percent annually, or by linking the key rate set by the Bank of Korea to the legal maximum rate. It can be implemented immediately by amending the enforcement ordinance, but the government first wants to persuade the National Assembly. That's because it's a delicate issue that can affect all members of the public, either directly or indirectly.

[Soundbite] Kim Deuk-ui(Solidarity for Financial Justice) : "The base rate should be set appropriately. It’s important to set the right gap between the key rate and the interest rates on deposits and loans."

However, the process could hit a snag, as a bill on slashing the legal maximum interest rate has already been proposed to the National Assembly.