The Financial Supervisory Service encouraged lenders to join the New Leap Fund, a "debt relief program." Only 13 of the top 30 lenders have signed the New Leap Fund agreement, and the Financial Supervisory Service plans to offer "incentives" to lenders that join the agreement to increase participation.
According to the financial authorities on the 3rd, Deputy Vice Governor for Inclusive Finance Kim Hyeong-won held a meeting with the CEOs of lenders and loan brokers (17). The meeting was held to urge the protection of users' rights and interests and to enhance credibility as institutions within the formal financial sector, while also strengthening communication by hearing the industry's suggestions.
The Financial Supervisory Service first encouraged lenders to participate in the New Leap Fund. Because the New Leap Fund is a public safety net to help low-income and vulnerable groups recover from long-term arrears, it asked the industry to take part proactively to share social responsibility and expand inclusive finance.
Incentives upon joining the agreement ▲ Allowing lenders that sign the agreement to sell eligible claims to the personal arrears debt purchase fund (in principle, sales are allowed only to the fund) ▲ Allowing banks to extend credit to lenders that join the New Leap Fund, among others. Currently, among the top 30 companies in the lending sector (based on holdings of long-term arrears), the number of lenders that have signed the New Leap Fund agreement stands at 13, up by three from 10 at the end of last year.
In addition, the Financial Supervisory Service urged compliance with user protection rules for lending services, such as limits on interest on arrears and restrictions on excessive collections under the Act on the Protection of Individual Debtors. Even if the benefit of the term is lost due to loan arrears, interest on arrears may not be charged on the portion not yet due (for principal under 50 million won); when transferring written-off claims, future interest claims must be waived; there must be total collection caps; and users have the right to request restrictions on types of collection contacts.
It also called for strengthening guidance on a debtor's right to request debt adjustment (for principal under 30 million won) and activating debt adjustment programs such as reductions of principal and interest and maturity extensions. The Financial Supervisory Service said, "Through on-site inspections, we will focus on checking compliance with the Act on the Protection of Individual Debtors, and we plan to monitor monthly approvals of debt adjustments to ensure the program takes root."
Reflecting the ransomware attack on a lender in Aug. last year that led to internal information being leaked on the dark web, it also urged stronger information security awareness regarding personal and credit information and the establishment of security measures under relevant laws to prevent a recurrence of hacking incidents.
This year, the Financial Supervisory Service plans to review the status of security measures for the lending sector's credit information systems and guide improvements to any shortcomings. It also emphasized that there must be no cases of passing personal information—such as the contact details of loan inquirers obtained from loan brokerage websites and similar operators—to illegal private lenders. The Financial Supervisory Service plans to conduct on-site inspections of loan brokerage website operators and lenders this year and take stern action if violations are found.
CEOs in the lending sector said profitability is difficult to secure because they are complying with the legal maximum interest rate (20% annually) while bearing high funding costs and credit losses, and they proposed easing restrictions on loans from other financial sectors to lenders and expanding incentives related to the "outstanding lender for low-income finance" program.
The Financial Supervisory Service will continue to check compliance by the lending sector with relevant laws such as the Act on the Protection of Individual Debtors and the Lending Business Act and will guide the establishment of the debt adjustment program. It also plans to review the status of security measure adoption for the lending sector's credit information systems, the presence of false or exaggerated advertisements, and any connections to illegal private lending.