The Ministry of Justice and the Financial Services Commission said on the 15th that they will fully abolish the special case for public notice service in payment order procedures to improve the practice in which financial institutions extend the statute of limitations on claims through payment orders without the debtor's knowledge.
The payment order (demand) procedure is a simplified dispute resolution process that proceeds solely on the creditor's application for a payment order, allowing the creditor to obtain an enforceable title without appearing in court. In principle, considering the simplicity of the procedure, public notice service is not allowed in payment order proceedings (proviso to Article 462 of the Civil Procedure Act), but a special case allowing public notice service even in payment order procedures has applied, as an exception, to a total of 26 financial institutions and public institutions such as banks, specialized credit finance companies, and special purpose companies for securitization through the 2014 amendment to the Special Act on the Promotion, etc., of Legal Proceedings.
However, criticism has continued that financial institutions, by using the current special system, mechanically extend the statute of limitations even for debtors in vulnerable groups with little repayment capacity, causing debtors in economic crisis to suffer prolonged collection efforts as the statute of limitations on the debt is extended without their knowledge. In response, President Lee Jae-myung said the simplified public notice service requirements, established for the operational convenience of financial institutions, are harsh for debtors, and ordered improvements to the current system that is unilaterally favorable to financial institutions.
Accordingly, the Ministry of Justice plans to pursue legislation to fully abolish the special case for public notice service to improve the practice of indiscriminate payment order applications by financial institutions to extend the statute of limitations and to protect debtors.
Along with the full abolition of the special case for public notice service, the Financial Services Commission (FSC) will also push follow-up policies to establish the principle of "completion in principle, extension by exception" for statutes of limitations. First, to improve the practice in which financial institutions continue to extend the statute of limitations and attempt long-term recovery even for written-off claims already recognized as losses under tax law, the FSC will amend the Rules on Recognition of Bad Debts for Financial Institution Claims and implement them in September.
When the amended rules take effect, financial institutions will be able to receive bad-debt recognition and tax benefits only on the condition that they allow the statute of limitations to be completed at the first maturity point for personal finance claims. In addition, the government will establish a system to report and disclose each financial institution's performance in completing the statute of limitations for personal finance claims and will disclose results starting with first-half performance this year. Through this, it aims to increase incentives for financial institutions to complete statutes of limitations.
In addition, to enable financial institutions to reasonably assess the recoverability of personal finance claims and decide whether to extend the statute of limitations, the relevant content will be reflected in each financial company's internal regulations by September. Through this, the Financial Services Commission (FSC) expects to improve the repetitive and mechanical practice of extending statutes of limitations and to induce active resolution of arrears claims.