TITLE: South Korea's Financial Services Commission Prohibits Banks from Reflecting Legal Costs in Loan Interest Rates
BODY:
On June 29, 2026, the Financial Services Commission (FSC) announced amendments to the Banking Act and Banking Act Enforcement Decree that take effect on July 1, 2026. The amendments prohibit banks from reflecting certain legal costs in new loan interest rates, thereby reducing borrowing costs for loan recipients.
Under the amended legislation, banks must prohibit reflection of specific legal costs in loan pricing. Reserve funds, deposit insurance premiums, and contributions to the Community Credit Loan Promotion Fund cannot be reflected in loan rates. For guarantee fund contributions—including those from the Credit Guarantee Fund, Technology Credit Guarantee Fund, Agricultural and Fisheries Credit Guarantee Fund, and regional credit guarantee foundations—banks must prohibit reflection of at least 50 percent of contributions for guaranteed loans, and 100 percent for non-guaranteed loans. Additionally, banks cannot reflect the increased education tax rate imposed on financial and insurance businesses under amended Education Tax Law (effective January 1, 2026), which increased the rate from 0.5 percent to 1.0 percent for revenue exceeding one trillion won.
Banks must conduct self-inspections at least twice annually to verify compliance with these prohibitions and maintain records of results. Banks must also incorporate these obligations and inspection requirements into their internal control standards. The amendments apply to loan contracts concluded or renewed on or after July 1, 2026. The FSC and Financial Supervisory Service will conduct ongoing monitoring to ensure banks comply with the legal cost reflection prohibitions. This initiative aligns with national policy objective 59, strengthening inclusive finance for lower-income and vulnerable populations.