“Borrower of Household Loan Can Demand The Decrease in The Interest Rate”

From next month, corporate customers as well as private customers borrowing the household loans will be able to demand the banks for the decreases in the interest rates of loans.

In addition, ancillary expenses related to the borrowing which have been borne by the customers will be decided upon by the consultation between the banks and the customers.

On the 12th, the Financial Supervisory Service announced that it would modify the basic agreement for the loan transaction of bank by including the above-mentioned contents in it as a backbone and implement it from next month.

In line with this, a customer borrowing the household loan at a floating rate will be able to readjust the lending rate after he submits to the bank the documents which can prove the improvement of his creditworthiness.

A bank will decide whether to decrease the lending rate or not by its assessment. Until now, the right to demand for the decrease in the lending rate has been allowed only for the corporate loan.

However, the customer borrowing a household loan at a fixed rate will not be able to demand for the decrease in the interest rate.

The payer of ancillary expenses including the mortgage registration expense and the stamp tax which have all been borne by the customer will be decided upon by the consultation between the bank and the customer. However, the ancillary expenses including such expenses for the legal procedure as expenses for the provisional attachment and the public bond deposit and the overdue interests, all of which will be caused by the customer`s responsibilities, will have to be all borne by the customer likewise the present practice.

The Financial Supervisory Service required the bank to make a clear expression of the fixed and floating rate separately and to modify the fixed interest only at the time when the apparent change of situation occurs. In addition to this, it introduced the right of customer who borrowed at the fixed rate to cancel the contract without any damage, by which the customer will be able to redeem his borrowing earlier than the maturity date in case he does not agree to the change of interest rate.

The Financial Supervisory service explained, “We obligated the lending bank to set off immediately the defaulted loan with the deposit of the borrower in case the borrower fails to repay the loan at the maturity date” and added, “We will take a measure to preclude the bank from delaying its set-off of the deposit with the loan to receive an overdue interest in stead of loan interest.”

The bank will be obligated to send a written notice to the guarantor when it has to recover the loan earlier than the maturity date due to such occurrence of significant change in the creditworthiness of borrower as the provisional attachment by the bank. .

The Financial Supervisory Service enabled the customer to make a convenient access to the agreement by obligating the banks not only to put it up on the wall of their sales outlets but to upload it on the Internet.

Dong-Won Kim daviskim@donga.com