Loan Finance Industry Urges FSC to "Ease Capital and Staffing Requirements for Purchased-Debt Collection Licensing" (Comprehensive)

50% investment by financial companies, KRW 3 billion in capital, five specialized legal professionals, among other requirements
"Regulations could trigger 'major upheaval' in the industry... Calls on FSC to consider industry views"

The financial industry has urged the Financial Services Commission (FSC) to take industry realities into account as it revises the licensing system for purchased-debt collection businesses, warning that the sector could undergo major upheaval unless capital and staffing requirements are eased.

Panelists take part in a discussion at the 17th Consumer Finance Conference, held on the 2nd at the Korea Federation of Banks in Jung-gu, Seoul. Attendees included financial authorities, such as Hong Sangjun, director of the Household Finance Division at the Financial Services Commission (fourth from right), industry representatives, including Lee Jeonghui, CEO of Promise Daebu (far left), and experts from academia and the legal field. Photo by Moon Chaeseok.

Industry representatives attending the 17th Consumer Finance Conference, held on November 2 by the Korea Loan Finance Association at the Federation of Korean Banks in Jung-gu, Seoul, called on the FSC to include measures to ease regulations on existing registered businesses in its revision.

At the conference, attorney Lee Hangyeong of Lee & Ko presented on supplementary measures for the transition to a licensing system for purchased-debt collection businesses, which the FSC announced last May.

According to Lee, the FSC's proposed licensing system would impose requirements even on businesses that do not collect debts directly from debtors, including that at least 50% of their capital be invested by financial companies, that they have at least KRW 3 billion in capital, and that they employ at least 20 full-time staff. It would also impose mandatory requirements, including having at least five specialized personnel, such as attorneys; restricting collection activities after the three-year grace period for existing businesses expires; and disposing of held claims within six months.

Lee proposed dividing the existing regulatory framework for loan receivables purchase and collection into two categories: "loan receivables purchase and management" and "loan receivables purchase and collection." She said that a survey of 84 companies found that 70% of respondents said direct collection accounted for 20% or less of their work.

"I question whether businesses really need to secure at least five legal professionals, as the FSC proposes," Lee said. "This requirement could be met by using outside attorneys or by appointing people with a certain level of relevant work experience."

She also criticized the capital requirements as unrealistic. Lee said that 716 of the 911 registered purchased-debt collection companies had less than KRW 3 billion in capital, accounting for 78.6% of the total. This means that most would struggle to meet the capital requirement without raising additional funds in the short term, such as through capital increases.

Criticism was also raised that requiring loan receivables purchase and collection businesses to employ 20 full-time staff would be difficult to meet given conditions in the sector. As of the end of last year, registered purchased-debt collection businesses had an average of only about 5.8 employees per company.

Panelists also called for easing regulations related to the FSC's transition to a licensing system for purchased-debt collection businesses.

Attorney Cho Jongtae of Daehwan Law Firm said, "Some licensing requirements, including the requirement for five specialized personnel, are excessive compared with industry realities." He added, "Requiring existing businesses that fail to obtain a license to dispose of their held claims within six months could infringe on property rights."

Lee Jeonghui, CEO of Promise Loan Finance, said, "The current registration system should be maintained, while the licensing system should be introduced in stages, including its physical requirements such as capital." He urged the authorities to "provide an exit strategy for companies that fail to obtain a license, so businesses can continue to play a sound role in the regulated financial sector."

Audience members working in the industry also said that the FSC should consider easing regulations related to its policies.

One audience member said, "Even among credit information companies that collect debts on behalf of others, and among savings banks, some have been unable to adequately recruit specialized attorneys. It is unreasonable to impose the same requirement on moneylenders." The audience member also said that requiring companies to dispose of their held claims within six months was unrealistic.

"If the current FSC proposal requiring companies to dispose of their held claims within six months is implemented, the industry will undergo major upheaval," the audience member said. "It is not easy for moneylenders to merge with one another, and if they sell their claims as the authorities direct, they will have to accept prices close to zero. I urge the FSC to take this into account."

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