The KDI report said that after the introduction of the compulsory one-year maintenance of additional services, the terms of the additional services were reduced significantly. (image: Fotero/flickr)
SEOUL, July 8 (Korea Bizwire) – The government’s regulation on credit card companies for the consumer rights has backfired. Its regulation on additional services provided by the companies was only proved to be a business ruse to cut their benefits to customers by reducing the length of its service.
In April 2010, the Korean government strengthened its regulation on additional services by forcing the card companies to maintain at least one year for an additional service once it is provided. It was a measure to protect the customers’ rights by making it hard to change additional service policy by the companies.
Credit card companies offer various additional services like frequent flyer mileages for air tickets, discount at certain places, more points in stores they are partnering with to attract more customers.
However, according to a recent report released by the Korea Development Institute (KDI), the regulation rather provided an excuse for card companies to cut their service terms. Now, the government plans to cut off any change of the additional service terms, but the measure is also criticized for limiting the customers’ rights to change the services and thus reduce their benefits from the services.
The KDI report said that after the introduction of the compulsory one-year maintenance of additional services, the terms of the additional services were reduced significantly. Before the regulation, the service terms on average were two years and 11 months in 2009, but the terms were reduced drastically after the regulation to two years 5 months in 2010, one year and 10 months in 2011 and one year and 5 months in 2012.
The report explained that the regulation of one-year maintenance of the service term acted as an ‘indulgence’ for the card companies to reduce the benefits of the additional services after one year of card issuance. Considering Koreans’ preference on additional services for their card selection, the government regulation could be seen as a critical error.
According to another report by the KDI last April on the customers’ consideration when selecting credit cards, 76.3 percent (including plural selections) of the surveyed chose “additional services” of the credit cards. Others were annual fees (47.9%), payment convenience (22.5%) and brand name of card companies (18.4%).
Considering this situation, the government recently announced that it would revise the regulation by abolishing the one-year compulsory service maintenance policy and by imposing stricter condition to changing the additional services such as inevitable situations like the bankruptcy of partner companies. Namely, the government de facto made the card companies sustain the additional services until the expiration date of the credit cards.
However, the KDI pointed out that the revised version of the regulation can also exert bad influence on the customers. As the card companies only provided additional services with large benefits of a short service term or small benefits of a long service term, the KDI expected that the companies would provide additional services with small benefits of a long service term only.
In that case, the benefits to “cherry-picking” customers who select their credit cards based on the additional services and swiftly change their cards when their additional services expire will be significantly decreased.
A research fellow at KDI suggested that it is needed to expand the selection rights of the companies and customers by introducing a variety of expiration date of the credit cards ranging two years to 10 years like the U.S. from currently fixed five-year expiration term. “Variation of the expiration terms can clear the additional service term and at the same time it can restore the customers’ right to selection by embedding various additional services in credit cards with various expiration terms,” he added.
Written by John Choi (johnchoi@koreabizwire.com)
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