Mercedes-Benz Financial Services Korea Criticized for Predatory Lending Practices

This file photo provided by Mercedes-Benz shows the Concept Mercedes-Maybach EQS, the first electric model of its luxury Maybach brand.

SEOUL, Nov. 24 (Korea Bizwire) — Mercedes-Benz Financial Services Korea (MBFSK), the South Korean unit of Mercedes-Benz Group AG’s financial and mobility services division, is being criticized for predatory lending practices.

It has been pointed out that MBFSK is offering high-interest-rate loans to new customers after borrowing at low interest rates from its German headquarters.

According to data from the Financial Supervisory Service, MBFSK achieved an operating income of 85.4 billion won (US$63.7 million) and an operating profit of 28.9 billion won in the third quarter of this year, with its operating profit to sales ratio estimated at 33.84 percent.

This is far higher than that of Hyundai Capital Services Inc., an auto finance subsidiary of Hyundai Motor Group.

Hyundai Capital’s third-quarter operating income was 45 times higher than that of MBFSK but the former’s operating profit to sales ratio stood at a mere 10.11 percent.

Industry watchers stressed that the secret behind MBFSK’s overwhelmingly high operating profit to sales ratio is the fact that it is offering high-interest-rate loans to new customers in return for offering discounted car prices.

When people buy a new car using MBFSK’s loan products, they have to pay an annual interest rate of up to 9.68 percent, far higher than those offered by other domestic credit finance companies.

Unlike domestic credit finance companies that raise funds by issuing credit finance bonds, MBFSK finances the loans using funds borrowed from headquarters.

In the third quarter of this year, MBFSK raised 1.15 trillion won of funds, or 76.87 percent of its total for the year, from its German headquarters at a very low interest rate of 1.02 percent.

Kevin Lee (kevinlee@koreabizwire.com)