Card issuers or loan sharks?

Companies under fire for huge interest margin

Credit card firms are under fire for their high interest rates on cash advances and card loan services. Criticisms surface that their business practices are reminiscent of loan sharks.

The high rates are in a stark contrast with President Moon Jae-in’s initiatives to ease the financial burden of the public as well as the financial authorities’ policies to contain high-rate card loans.

According to Rep. Je Youn-kyung of the Democratic Party of Korea and the Credit Finance Association, Samsung Card borrowed 17.52 trillion won ($15.44 billion) at an interest rate between 1 percent and 2 percent in the first half of this year. An additional 6.38 trillion won was borrowed at a rate of 2 percent to 3 percent.

With the fund, however, the credit card issuer extended short-term cash advances at an average 20.8 percent rate and long-term card loans at an average 15.4 percent.

Other card firms also applied similarly high-interest rate, enjoying huge interest margins.

Shinhan Card secured 22.07 trillion won at a rate of 1 percent to 2 percent and 1.93 trillion won at a rate of 2 percent to 3 percent. But it also received the 20.2 percent rate in cash advances and 14.4 percent rate in card loans.

Woori, Lotte, KB Kookmin and other smaller card issuers also borrowed funds mostly at 1 percent to 2 percent but applied 13 percent to 21 percent for lending.

As a result, they raked in profits based on the huge interest margin.

According to the Financial Supervisory Service, seven credit card firms gained 1.12 trillion won through cash advances and card loans in the first half of this year, up 10.7 percent from two years ago.

In separate data, Samsung Card showed the highest proportion of borrowers who have to pay high interest rates.

In a July tally compiled by local media, 19.2 percent of Samsung Card’s borrowers have faced annual interest rates higher than 20 percent.

The proportion was 17.34 percent of KB Kookmin Card users and 14.46 percent for Woori Card customers.

Market watchers say credit card firms continues such controversial practices to compensate for worsening profits in their conventional businesses — commissions for card usage.

“Despite the government’s initiative to lower the maximum legal lending rate to 20 percent, credit card firms are enjoying high interest margins as if they are loan sharks,” Je said.

However, the card firms do not violate the relevant laws. Currently, the maximum legal interest rate for non-bank companies is 27.9 percent. The government plans to lower the ceiling to 24 percent next year and 20 percent in five years.