Consumer group prepares class action suit over rate fixing

A Korean consumer advocacy group said Wednesday that it is preparing for a class action suit against banks’ alleged collusion to rig key money-market rates, as suspected rate fixing is presumed to add to households’ debt burden.

The Fair Trade Commission, the country’s anti-trust watchdog, last week launched an investigation into major local banks and brokerage houses over their suspected involvement in rigging rates on the 91-day certificate of deposit, or the benchmark for bank lending rates.

The Financial Consumer Agency said it will accept applications from borrowers who believe the alleged rate fixing has caused financial damage to them, to prepare for the class action suit.

A CD is a financial instrument sold by banks and circulated in secondary markets by securities firms. Most bank mortgage loans are tied to CD rates, raising chances that higher CD rates might contribute to increased debt-repaying burdens for households.

According to the agency, suspected rate fixing is estimated to have incurred around 1.6 trillion won ($1.4 billion) in damage per year for borrowers.

Currently, the CD rates are announced twice a day via quotations by 10 local securities firms based on CDs sold by seven banks.

The probe came as the CD rates remained relatively high even as other market rates fell amid the slowing economy and prospects for a rate cut by the central bank.

Household lending handled by local banks and non-bank institutions totaled a record 642.7 trillion won at the end of May, according to data by the central bank.

The probe came as similar investigations are underway in the United States and Britain into several banks, including Barclays, for their alleged involvement in rigging the London Interbank Offered Rate, or Libor, a benchmark interest rate in the global financial market. (Yonhap News)