The Financial Services Commission on the 17th preannounced a revision to the "guidelines on debt collection and sales of loan receivables" that would impose debtor-protection responsibilities on the original creditor financial company even after selling delinquent receivables. If the revision takes effect, the original creditor financial company that originated the loan will bear debtor-protection responsibilities even after selling the receivables.
Under the current system, when a financial company does not sell receivables in arrears but retains them and collects directly, it is subject to strict collection conduct regulations under the Personal Debtor Protection Act, which took effect in Oct. last year. Specifically, measures in place include a total collection cap that limits collection attempts to seven times over seven days, a contact restriction request right that allows the debtor to request no visits to the workplace or no contact during certain hours, and a system that defers collection for a certain period when serious repayment hardship arises, such as surgery, hospitalization, or a funeral.
By contrast, when a financial company sold receivables in arrears, it could in effect completely escape customer-protection responsibility. As a result, from the financial company's perspective, it was more advantageous to immediately recover receivables through a sale and avoid customer-protection responsibility than to continue to retain, manage, and collect delinquent receivables.
As a result, repeated sales of delinquent receivables caused harm to debtors. As receivables held by a bank were resold to savings banks, card companies, and capital companies and then again to purchased receivables collection agencies, the collecting party kept changing, and the debtor was exposed to collection intensity beyond what was anticipated at the time of the loan contract or suffered disadvantages such as a drop in credit score.
The Financial Services Commission intends through this revision to curb the repetitive and mechanical sale of delinquent receivables by making the original creditor financial company that first originated the loan bear customer-protection responsibilities even after selling the receivables.
First, the original creditor financial company is obligated to check for unlawful acts by the assignee after the sale of receivables and to report them to the financial authorities if discovered. The original creditor financial company may request information related to the assigned receivables as needed to conduct checks on the assignee. Information that may be requested includes the status of collection and collection outsourcing of the assigned receivables and the status of statute-of-limitations management of the assigned receivables. Unless there are special circumstances, the assignee must comply.
In addition, the original creditor financial company must include matters related to resale of receivables in the receivables sale contract. When selling receivables, the financial company must specify in detail whether resale is allowed and its scope, the debtor-protection conditions that carry over upon resale, and the criteria for assessing the suitability of collection agencies that are resale targets. If the assignee violates these resale conditions, the original creditor financial company may restrict subsequent receivables sales to that assignee.
The Financial Services Commission plans to complete the revision to the "guidelines on debt collection and sales of loan receivables," preannounced that day, in July and implement it immediately.