Consumer groups plan class-action lawsuits, FSC mulls new rate to replace CD rate


A brokerage firm admitted after the nation’s antitrust watchdog launched a probe that it colluded with other companies to rig interest rates of certificates of deposit, financial sources said on Thursday.

Financial observers said the CD rate-rigging case could develop into a Korean version of the LIBOR or the London Interbank Offered Rate fixing scandal in Britain and have huge ramifications.

Under the Fair Trade Commission’s leniency program, the first company to voluntarily report its wrongdoings gets full exemption from fines, and the second about 50 percent.

Consumer groups are set to file class-action lawsuits against financial companies once they are confirmed to have rigged the CD rates.

The Financial Services Commission held a meeting on Thursday to discuss developing a new benchmark rate to replace the CD rate as CD issuances dropped sharply, raising criticism that the CD rate was no longer representative of other market rates.

The FTC is investigating 10 local brokerage houses and nine banks over suspicions that they colluded to fix interest rates of three-month CDs.

FTC investigators on Wednesday searched the offices of KB Kookmin, Woori, Hana and Shinhan, the country’s four largest banks, as well as Standard Chartered, Nonghyup, Daegu and Busan, and left with documents and other records of their CD issuance and rate-setting decisions, a day after raiding 10 brokerage firms.

The CD rate is the benchmark rate for corporate and household loans. 

Ten brokerage firms set the borrowing costs for the CDs issued by seven local banks, and the Korea Financial Investment Association calculates the average of figures collected from the brokerages and announces it twice every day at 11:30 a.m. and 3:30 p.m.

The FTC investigation came as the CD rates remained relatively high when other market rates have dropped. The rate had remained unchanged at 3.54 percent for almost three months since March.

The Korea Finance Consumer Federation said on Thursday it will call on financial firms to return their undue profits if the antitrust watchdog and the court rule them guilty of fixing CD rates.

Should the companies refuse to pay, the consumer federation plans to push for class-action suits.

“CD rates are used as the benchmark for housing mortgage loan rates, so if the financial firms colluded and rigged CD rates, that means they sucked the blood out of ordinary people,” said Cho Youn-haeng, vice president of the federation.

“If the rate-rigging is found to be true and the companies don’t do anything about it, we will take steps for class-action suits, which are expected to be the largest ever (in Korea).”

The KFCF in April filed a class-action suit totaling some 17 trillion won against Samsung Life Insurance, Korea Life Insurance and Kyobo Life Insurance which voluntarily reported themselves for collusion to the FTC to get exempted from fines under a leniency program. The insurers are suspected of colluding to raise insurance premiums.

The KFCF estimates that for every 0.5 percentage point drop in the CD rate, the banking sector loses about 1.8 trillion won in annual earnings.

Considering that the CD rates have been applied for decades, the damage claims could go up to 20 trillion won, the KFCF said.

By Kim So-hyun (sophie@heraldcorp.com)