▲ Financial Services Commission
Financial institutions will no longer be exempt from customer protection responsibilities even after selling overdue debt.
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) announced today (June 17) that they will revise the 'Guidelines for Debt Collection and Loan Asset Sales' in July to include these provisions, with immediate effect upon implementation.
Under the revised guidelines, the original financial institution that issued the loan will retain responsibility for protecting the debtor even after the overdue debt has been sold.
Currently, when financial firms hold and collect overdue debt, they are subject to strict collection regulations under the Personal Debtor Protection Act. Even when outsourcing collection tasks, they bear strong management and supervision responsibilities, such as being jointly liable for damages if the collection agency causes harm to a personal debtor.
However, firms have been able to evade these customer protection responsibilities by selling the overdue debt.
Financial authorities explained that this created an incentive for financial firms to sell overdue debt in a mechanical manner.
As a result, overdue debt has been repeatedly sold, and with the frequent changes in the entity responsible for collection, debtors have been exposed to collection intensity exceeding what was expected at the time of the loan agreement, leading to disadvantages such as a decline in credit scores.
Moving forward, the original creditor financial institution will be required to monitor the conduct of the purchaser after the debt sale and report any illegal activities to financial authorities.
To monitor purchasers, the original creditor financial institution may request information regarding the transferred debt, and the purchaser must comply unless there are exceptional circumstances.
Furthermore, it will be mandatory for the original creditor financial institution to include provisions regarding the resale of debt in the debt sale contract.
When selling debt, the original creditor financial institution must specify whether resale is permitted and its scope, the debtor protection conditions to be inherited upon resale, and the criteria for assessing the suitability of collection agencies in the event of a resale.
If a purchaser violates the resale conditions, the debt sale can be restricted.
The FSC stated, "The purpose is to curb the repetitive and mechanical sale of overdue debt by ensuring that the original creditor financial institution that first issued the loan remains responsible for customer protection even after the debt is sold."
This regulatory overhaul is a follow-up measure to the 'Plan to Strengthen Management of Personal Overdue Debt for Debtor Protection and Rapid Recovery Support,' which was announced at the 2nd Inclusive Finance Transformation Meeting last February.
(Photo: Provided by Financial Services Commission, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.