Rep. Park Hong-bae of the Democratic Party of Korea pointed out consumer protection issues in the interest rate calculation system for margin loans and the automatic lending service to prevent freezing of unsettled accounts at securities firms.
Lee Chan-jin, head of the Financial Supervisory Service, hinted at institutional improvements by stating, “I empathize with a considerable portion of the points raised, and we recently confirmed the automatic service; the responsible department will conduct a thorough review.”
On Monday, during the National Audit of the Financial Supervisory Service held by the Political Affairs Committee of the National Assembly at the Seoul National Assembly Yeouido, Rep. Park pointed out that “the new amount of margin loans from the top 10 securities firms in June this year was 67 trillion won, an increase of nearly three times compared to the same month last year.”
He continued, “Margin loans are products that are just like swimming while touching the bottom, similar to deposit-backed loans from banks,” and pointed out, “Yet the loan limits vary by firm, and securities firms charged around 10% interest in the first half of the year before lowering rates in the second half.” See article☞[Exclusive] Margin loans surge 293%, as noted by President Lee… 67 trillion won in new loans in one month
Recently, Mirae Asset Securities announced that it would apply an interest rate of 5.95% to loans of 30 million won or less starting in November. In response, Rep. Park pointed out, “If you were charging 9% interest on loans that should only require 5% interest until now, shouldn’t we consider there is a problem with the loan interest rate calculation?”
Lee said, “There are parts of the criticism I empathize with,” and promised to re-examine the loan interest rate calculation system.
Park also viewed the automatic lending services of some securities firms, where margin loans are automatically executed to prevent freezing of unsettled accounts, as problematic. He criticized, “There is a product similar to a bank overdraft facility where, if an individual sets it up in advance, the securities firm automatically provides a loan every time an unsettled amount occurs. I am very doubtful whether investors were aware that they were taking out loans and bearing interest each time an unsettled amount arose.”
Kiwoom Securities, which had the largest automatic service margin loan amount, suspended new loans starting from the 15th. Park noted, “Kiwoom Securities, Mirae Asset Securities, and KB Securities operated the automatic service, but they completely stopped the service after the Choi Geun (Rep.) office and the media raised issues,” adding, “It appears highly likely that securities firms stopped the automatic service on their own, thinking ‘we are in big trouble,’ because they did not properly comply with consumer protection procedures.”
Lee explained, “I learned about the specific situation while preparing for the recent National Audit that margin loans had reached that extent,” and added, “It has been confirmed that this (automatic service) has significant problems, so we were planning to inspect it anyway.”
Park said, “From the investors’ perspective, they bear interest costs and rush into reinvestment, bearing a high risk of loss, while securities firms collect both fees and interest,” and urged, “Please inspect the interest rate calculation system for margin loans and the operational status of automatic lending.”
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