Exploitative credit card firms

Despite the fact that credit card companies make huge amounts of money thanks to the recent whopping increase in the number of cardholders, they are reluctant to lower fees for their customers. This is nothing less than exploitation. In January and February 1998, just after the outbreak of the foreign exchange crisis, credit cards companies sharply raised their service charges and overdue payment fees. Although bank interest rates for card firms recently fell to 8 percent, some of these companies nonetheless raised their service charges, while others stuck to the current level or made only nominal reductions.

The Fair Trade Commission (FTC) ordered the three dominant credit card companies, BC Card, LG Capital and Samsung Card to lower their service charges and readjust their late payment fees but the commission failed to offer guidelines on the scope of reductions. Hence, it has yet to be revealed by how much the companies will lower their fees. In view of the exorbitant profits earned by credit card firms, the fines imposed by the FTC were quite meager. Monthly interest rates on credit card purchases hover around 23.5 to 28.1 percent per annum, about three times the average annual bank rate of 9 percent. Considering that the proceeds from cash advances reach more than half of the sales income earned by credit card firms, they could be said to be primarily in the business of usury. The interest rate on installment purchases is as high as 14-19 percent.

What`s more, the government policy to encourage the use of credit cards by the general public has helped card firms earn enormous profits at the expense of cardholders. Surveys revealed that the afore-mentioned three card companies saw their net profits grow somewhere between 4.9- and 32.3-fold last year compared with 1998. They thus earned three times more than the average bank. Under the circumstances, it is natural that at least part of their exorbitant gains should be returned to consumers. True, almost everyone now has a credit card and even low-income earners have acquired cards since the government implemented a lottery system for users. Thanks to these favorable conditions, card companies recorded total sales of around 210 trillion won. With the government`s plan to give tax breaks to card users this year, sales on credit are expected to hit new highs.

It is improper for the government to entrust the operation of credit card businesses, an essential means of conducting financial transactions, to a few private enterprises and then show negligence in supervising them. Taking advantage of their 70-plus percent market dominance, the three credit card firms were able to make massive profits, for which the FTC is primarily accountable. Major hotels, department stores and other firms that have a considerable competitive edge over card firms have somewhat cut their credit card interest rates, yet government guidance is needed for smaller businesses that have seen fit to defy its orders.