Industry Clash Over Easing Capital Firm Rental Regulations: "Separate Markets" vs "Encroachment Concerns"

First Consultation Held Eight Months After Regulatory Review Commenced... Disagreements Persist

Credit Finance Association and Rental Car Industry Clash Over Market Definitions and Consumer Welfare

Rental Car Industry: "Considering Approachi

As financial authorities consider easing the cap on rental assets handled by capital companies, the credit finance industry and the rental car industry are at odds over the potential impact on small-sized rental car businesses. The credit finance industry claims that capital companies mainly focus on the long-term rental market, so they do not directly compete with small businesses that specialize in short-term rentals. On the other hand, the rental car industry is concerned that if regulations are relaxed, capital companies with strong financial resources and ties to automobile manufacturers could expand their dominance in the market.

According to a comprehensive report by The Asia Business Daily on the 21st, the Credit Finance Association, the Korea Rent-a-Car Association Federation, and the National Rent-a-Car Association held their first negotiation on July 13, eight months after the Financial Services Commission announced its plan to review regulatory reforms for capital companies regarding rental regulations. However, they failed to narrow their differences.

The Korea Rent-a-Car Association Federation submitted a written statement opposing regulatory relaxation to the Financial Services Commission in May, but has not received a response. Subsequently, on July 13, it was offered proposals from the Credit Finance Association to grant a 3- to 6-month deferment on installment payments for small rental car operators as well as to share information about capital company short-term products, but the federation declined to accept these.

On July 14, just one day later, the Korea Rent-a-Car Association Federation submitted an additional written statement opposing the easing of the cap on rental assets for capital companies to the Financial Services Commission and the Fair Trade Commission, but is still awaiting a reply. If neither the Financial Services Commission nor the Fair Trade Commission responds, federation officials are also considering delivering their statement opposing the relaxation of rental regulations to other organizations, such as the Korea Commission for Corporate Partnership.

Choi Yoonchul, President of the Korea Rent-a-Car Association Federation, stated, "An abrupt and one-sided notification of claims from the Credit Finance Association is unacceptable," adding, "If action is truly necessary, it should be discussed thoroughly and in depth, with sufficient time, through a credible government agency."

The underlying reason that both sides have failed to find common ground lies in their differing perceptions of the current regulations governing the cap on rental assets.

The regulation under review by the Financial Services Commission is Article 3 of Appendix 1 in the Supervisory Regulations on Specialized Credit Finance Businesses. The current regulation states, "The average undepreciated balance of rental assets by item during a quarter must not exceed the average balance of lease assets during the same quarter." This means capital companies can only retain and operate rental assets within the limit of their lease asset balance.

Related to this, on November 20 last year, Lee Eog-weon, Chairman of the Financial Services Commission, held a meeting in Jung-gu, Seoul, at the Credit Finance Association with CEOs of card, capital, and new technology finance companies, where he announced, "We will actively consider various regulatory reforms, including business volume caps for the rental industry."

The core issue is whether the business domains of capital companies and small rental car businesses are actually distinct. In a written statement submitted to this newspaper on July 16, large capital company A stated, "Under current regulations, capital companies focus on the rental business, and small rental car companies focus on short-term rental business as their main domain."

The Credit Finance Association and major capital companies have argued for years, "Under the supervisory regulations for specialized credit finance businesses, capital companies are restricted in offering short-term (less than one year) car rental products," and thus, "Direct competition with the short-term rental market, which is the main domain of small rental car companies, is limited."

One capital company official argued, "It is actually the major dedicated rental car companies, such as Lotte Rental and SK Rent-a-Car, that operate short-term rental businesses as well, and these players pose a greater threat to the small- and medium-sized rental car companies' small business market."

On the other hand, the Korea Rent-a-Car Association Federation holds the view that it is inappropriate to consider the long-term rental and short-term rental car markets as completely separate.

President Choi stated, "I agree with the claim that, in terms of regulations, capital finance companies find it structurally difficult to enter the short-term rental market," but also countered, "From the consumer's perspective, long-term and short-term rentals are substitutable services within the same vehicle usage market. Therefore, if the business domain expands following deregulation, it is highly likely that the distinction between the markets will gradually become blurred."

Both sides also differ in their assessment of consumer benefits. The credit finance industry argues that if regulations are eased, there may be a greater variety of products combining long-term rentals and financial services, thereby increasing consumer choices. In contrast, the rental car industry notes that if financial company credit evaluation standards are applied, consumers with mid- to low-level credit ratings may face difficulty accessing some products.

According to both the credit finance and rental car industries, amending the Supervisory Regulations on Specialized Credit Finance Businesses does not require legislative changes and can be implemented following procedures by the Financial Services Commission. However, as sufficient discussions regarding protection and mutual growth measures for small rental car businesses with relevant agencies, including the Ministry of Land, Infrastructure, and Transport (the ministry overseeing the rental car industry), have not taken place—and disagreements within the industry remain large—it will likely not be easy for financial authorities to move ahead with easing regulations.

An official from the Financial Services Commission stated, "A decision has not yet been made on whether the policy to ease the rental cap for the credit finance industry will be implemented," and added, "At present, it is also difficult to comment on measures to protect small rental car companies."

Experts emphasize that, regardless of whether regulations are eased, more concrete examination is required for both market definition and the impact on consumers. There are strong opposing opinions—some say that entry by financial companies could improve consumer benefits, while others warn that lowering the entry barrier could damage the preexisting industry ecosystem.

Seo Jiyong, Professor in the School of Business Administration at Sangmyung University, stated, "If financial companies' rental regulations are eased and more products combining long-term rental and financial services appear, consumers will be able to access services in a 'one-stop' fashion. They will also be able to choose vehicle usage methods, payment structures, and contract structures that best fit their situations, providing greater benefits." He added, "Taking into account increased competition and improved consumer welfare, it is necessary to ease entry restrictions for capital companies."

Kim Pilsoo, Professor in the School of Future Automotive Studies at Daelim University, stated, "Once disrupted, the ecosystem of the rental car market is difficult to restore, and lowering the barrier for financial companies to enter may lead to a rapid decrease in jobs for employees and executives at small-sized rental car businesses in a short period." He continued, "The impact of deregulation on the industry should be verified by commissioning policy research, lasting at least six months, from a professional institution or university. Then the Financial Services Commission, the Ministry of Land, Infrastructure, and Transport, and other related ministries should collectively announce the results or hold public hearings and policy debates to foster societal debate."

This content was produced with the assistance of AI translation services.