Consumer revolt

Firms, banks face series of class action suits for unfair pratices

A sense of apprehension is taking hold at major finance and technology companies here as they brace for a wave of legal action by vengeful consumers, who feel they have been manipulated or ripped off.

Backing some 40,000 plaintiffs, the Korea Consumer Agency (KCA) recently filed a class action suit against the country’s commercial banks and insurance firms over collateral security payments that had been tacked onto home-backed loans in recent years.

The Fair Trade Commission (FTC) previously decided that it was wrong for financial companies to pass the entire burden related to collateral security to customers. Since July, financial companies have been fully financing the costs for collateral security on loans and covering half of the stamp duty.

The legal action comes after the state-run Consumer Dispute Resolution Committee ruled earlier this year that financial companies were wrong to charge borrowers the additional expenses and that they should refund payments dating back to 2003.

The KCA is hoping to win 530,000 won for each plaintiff on average, and if it does, the 22 billion won coughed up by financial companies will represent the industry’s biggest compensation settlement ever.

“We took a legal action as banks have shown a lukewarm stance on the issue,” an official from the KCA said. “Since all the people have related documents and proof, we believe we will win the suit.”

According to the Korea Finance Consumer Federation, a civic consumer advocacy group, the total financial damage to consumers related to collateral security is estimated at 10 trillion won.

Meanwhile, another large-scale class action suit is brewing over mobile phones. The People’s Solidarity for Participatory Democracy (PSPD) said it will soon file a lawsuit against major mobile-phone makers Samsung Electronics, LG Electronics and Pantech and wireless carriers SK Telecom, KT and LG Uplus over handset price fixing.

The FTC in March levied a combined 45.3 billion won in fines on the electronics companies and wireless carriers over charges of colluding to keep prices of phones high.

SK Telecom, the country’s largest mobile carrier, was fined 20.2 billion won, along with Samsung Electronics, which has a 70 percent share of the handset market here, with 14.3 billion won. KT, LG Uplus, LG Electronics and Pantech were hit with smaller fines.

“The FTC’s decision is just punishment on illegal business activities of the three mobile carriers and three handset makers,” the civic group said in a statement. “But it won’t help customers get compensated.”

The fines imposed on each company are much less than the profits they generated from illegal business activities so they should be ordered to return illegally-earned gains, the group added.

According to the FTC, the three mobile carriers raised the original prices of mobile phones by 225,000 won on average between 2008 and 2010. They then pretended they were giving that much in subsidies to subscribers buying the handsets. The manufacturers colluded with the mobile carriers, suggesting bigger price tags as this would get their phones recognized as premium products. <The Korea Times/Kim Tae-jong>

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