Reasons for raising interest rate deregulation

[아시아경제 이은주 기자] In the face of rising interest rates, calls are being made to ease the statutory maximum interest rate regulation. As the legal maximum interest rate was lowered last year, the credit loan market in the loan finance industry shrank, and access to loans for the financially vulnerable was greatly reduced. Let me present the logic of the claim that the maximum interest rate regulation should be lifted.

The loan finance market is the most frontier market among Korean loan markets. Financial consumers in the vulnerable class with low credit are mostly involved. The problem is that due to the maximum interest rate regulation, which prevents interest rates from paying more than 20%, the opportunity for people with extremely low credit to receive loan services even through the loan market is disappearing. Inadequate regulation has created a mismatch between the demand for loans in the market and the supply of them.

On the 15th, Professor Cheol Choi of Sookmyung Women’s University, who gave a presentation at the ’13th Consumer Finance Conference’ of the Korea Loan Finance Association, diagnosed that the credit supply in the loan finance market is decreasing through research. According to Professor Choi, the scale of credit loans in the loan finance market, which was 7.367 trillion won at the end of 2020, has decreased to 7.29 trillion won by the end of 2021. It means that those with outstanding credit low that can use the loan market only by paying high interest rates of 20% or more are continuously excluded from the financial market.

The Korea Loan Finance Association also finds that 200,000 to 300,000 loan finance users lose their loan opportunities every year due to the maximum interest rate regulation. That is why the claim that the maximum interest rate regulation of 20% should be released is coming out. First of all, Professor Choi diagnosed the maximum interest rate of the current optimal loan market as 32.2%, and believed that the maximum interest rate should be at least 26.7%.

So what about other countries? How do you use the excess interest limit of loan finance? However, according to Professor Choi, there is currently no general regulation of maximum interest rates at the federal level in the United States. However, the Military Loans Regulation Act amended in 2006 sets the maximum interest rate at 36% per annum. It is also said that each state looks completely different. What if there are states with no regulations at all? The maximum interest rate regulation is said to vary greatly from 16% to 600% per annum.

In the case of the EU, each member state has different regulations. There is a regulation that there must be a unified unified interest rate regulation at EU level, but all countries adhere to the regulation voluntarily. It is said that only five countries among EU member states have adopted a fixed maximum interest rate system like Korea. The remaining 22 countries are said to be adopting a variable maximum interest rate system to reflect market conditions. In other words, it is said that the majority of EU member states and some states in the United States do not introduce specific interest rate regulations through advance regulation, as in the Korean Loan Business Act. Through civil and criminal precedents and jurisprudence, profits are checked and regulated ex post facto on a case by case basis.

Reporter Lee Eun-joo golden@asiae.co.kr