By Kim Tae-gyu
Staff Reporter
Starting next year, a number of Korean credit card issuers plan to remove one-off commissions levied for cash advance services amid strong pressure from the financial authority and politicians.
The Financial Supervisory Service (FSS) asked the companies to generate plans on how to reduce commissions for cash advance services, with some promising to scrap the handling charges.
``Several credit card companies pledged not to impose one-off charges on cash advance users, which have been between 3 to 5 percent when calculated as annual rates,'' said a source who is familiar with the issue.
``But they will continue to chalk up interest for the services.''
The source refused to identify the credit card companies thinking of eliminating the one-off commission, but Shinhan Card, Hana Card, SC First Bank and Industrial Bank of Korea are on the lips of market watchers.
The FSS, Shinhan Card and Hana Card refused to confirm their plans. But Industrial Bank of Korea said it would abolish the commissions, while SC First noted that it was strongly considering the measure.
Credit card companies have created two kinds of commissions for cash advance services: a one-off handling charge in proportion to the amount of the services and interest rates depending on their amount and the settlement period.
As several lawmakers took issue with the high commissions for cash advance services during the parliamentary inspection, the FSS has urged the credit card companies to cut the charges.
In addition, civic groups have also pushed hard for the initiative.
``Credit card companies have charged prohibitively high interest rates for cash advance services, which have weighed on households,'' said Kim Dong-eon of the People's Solidarity for Participatory Democracy.
``As the interest rates of their three-year corporate bonds are less than 6 percent, they are raking in too much profit. In other words, they are financing money at 6 percent while lending at higher than 20 percent. In this climate, they squeezed out more revenue by imposing one-off commissions, which should be removed.''
Kim contended that based on the excessive profits, credit card firms have shored up their balance sheets and income statements. Twenty domestic credit card firms combined to net 3.4 trillion in profits last year even amid the global financial crisis.
However, he warned the removal of the one-off commissions might not be welcome news for users.
``In my view, most credit card companies will get rid of the one-off commissions following the guidelines of the financial regulator but you should look whether they will compensate for the losses by raising interest rates,'' Kim said.
``Should they jack up the interest rate in return for doing away with the one-off commissions, it would be tantamount to swindling. You are required to keep a tab on the interest rate changes of the firms.''