Banks Prohibited From Including Legal Costs in Loan Interest Rates Starting Next Month

Starting next month, banks will be prohibited from including various statutory contributions when calculating loan interest rates, a move expected to ease the interest burden on borrowers.

According to the Financial Services Commission on June 29, the amendments to the Banking Act and its enforcement decree, which include these provisions, will take effect on July 1.

Until now, banks have included these statutory contributions in the spread when calculating interest rates for loans that serve as the basis for such contributions.

Under the revised regulations, banks are no longer allowed to reflect reserve requirements, deposit insurance premiums, and contributions to the Korea Inclusive Finance Agency in their loan interest rates.

While reserve requirements and deposit insurance premiums have not been included by any bank since the revision of the best practices for loan interest rates in January 2023, they have now been explicitly specified as legal cost items that cannot be reflected in interest rates, alongside contributions to the Korea Inclusive Finance Agency.

Furthermore, the inclusion of contributions to various guarantee funds, such as the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation, which banks are required to pay under individual laws, will also be partially restricted.

For guaranteed loans, which are issued with guarantees from these funds, banks cannot reflect more than 50% of the contributions in the loan interest rate.

For non-guaranteed loans, which are issued independently of such guarantees, the inclusion of these contributions in loan interest rates is 100% prohibited.

In addition, in accordance with the revised Education Tax Act, the portion of the education tax rate increase imposed on financial and insurance businesses cannot be reflected in loan interest rates.

Banks must conduct self-inspections on these matters at least twice a year and record and manage the results.

These requirements, including the prohibition on reflecting legal costs in loan interest rates and the obligation for regular inspections, must also be incorporated into the banks' internal control standards.

These measures will apply to loan agreements signed or renewed on or after July 1.

Financial authorities also stated that they will continuously monitor whether banks are complying with the prohibition on including legal costs in loan interest rates.

(Photo: Provided by Financial Services Commission, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.