Nine Amendments to Regulations on Mutual Saving Banks

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Recently the hot issue in Korea was the crisis of savings banks and the resulting loss of those who deposited their savings there, which was later named “savings banks crisis.” Accordingly, the Financial Commission Service (FSC) decreed a six-month business suspension for seven savings banks in Korea from February 17th to 22nd in 2011.

Then we face a question at this point: What has caused the crisis and the subsequent clause amendments regarding savings banks in Korea? The most consequential answer would be the indiscreet investments in “real estate project financing” (PF) in mid 2000s by savings banks. Unfortunately in 2008 the Global Financial Crisis intruded into Korean economy. The real estate market in Korea, deeply related to PF, plummeted as a result; this whole situation caused the financial predicaments of various savings banks that participated in the investment.

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Throughout the crisis, those who had to suffer the most damage were the clients of savings banks. In order to minimize their loss, there recently have been made total nine clause amendments regarding the contract and transaction in savings banks. These nine belong to one of the four categories listed below.

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 1.   Enhancement in clients’ right to be informed

2.   Enhancement in client convenience

3.   The guarantee of clients ‘claim in their right

4.   The minimization of clients financial loss

 

 

 

 

 

 

 Enhancement in clients’ right to be informed

(Before)

Clients had no means but to comply with the savings bank’s decision even if it unilaterally determined and changed the contents of a contract without having informed its clients previously.

 

(Amended)

Before clients sign a contract they will be able to check and confirm the important conditions of a contract through an enhanced manual of the product and improved guidelines on the Internet web page.

(Before) When a savings bank changed contract terms, those changes were only disclosed by the branch in a district.

(Amended)

Clients now will have more access to contract-term changes as a savings bank with its enhanced duty of informing clients is liable to displaying the term changes on its Internet web page one month before the execution

(Before)

Depending on a savings bank’s needs, it had the right to dispose of clients’ property or cancel a contract in its favorable manner.

(Amended)

Now the bank will be liable to informing in advance clients of the disposal process and specifying the contract cancelation reason.

 

 Enhancement in client convenience

(Before)

Clients’ declaration of their intention such as changing their address was only permitted in writing, and possible loss due to omission in the process was imposed on clients.

(Amended)

Phone calls, fax, and other electronic means will now be permitted in declaring clients’ intention, and when omission occurs there will be no one-sided imposition of the loss.

(Before)

In case of a lawsuit between a savings bank and its clients, the lawsuit was to be under the jurisdiction of a court within the bank’s district

(Amended)

Now a court under the jurisdiction of a client’s district will also be considered, achieving equilibrium between both parties.

Guarantee of clients ‘claim in their right

(Before)

Previous clauses stated that clients should remise their right to counter-argue as well as their rights regarding civil and criminal issues.

(Amended)

These unreasonable clauses will be eliminated in order to protect clients’ rights.

(Before)

It was considered rightful even when a savings bank announced the contents of deposit transactions not directly to account holders but to the third person.

(Amended)

By eliminating this clause, account holders will now be directly informed of such contents, and more transparent criteria will be introduced; henceforth this will contribute to more secured protection of their rights

Minimization of clients financial loss 

(Before)

Previously when a client cancels midway a contract for using a safe-deposit box, the savings bank did not have to return the full commission that it had received in advance.

(Amended)

Considering the duration of service being provided, there will be more reasonable calculation regarding the returning of commission.

(Before)

The rate of overdue interest for a loan is equal to the summation of the rate of interest agreed and the rate of additional overdue interest. According to the previous clause, the rate of additional overdue interest was not differentiated depending on overdue periods.

(Amended)

The rate of additional overdue interest will be strictly differentiated depending on overdue periods

 

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