Regarding regaining credit, since 2008, government has helped 5.39 hundred thousand people to recover their credit. For those who has repaid the loan sincerely, has got the funds for living with low interest (4%). There have been certain achievements but there should be more help with finance and other efforts to prevent deterioration of credit rating.

To prevent this, finance authority would help them in 2 ways.

  (Regaining credit)

l  Expand the funds for those who have been sincerely repaid the loan with low-interest and reduce the cost related to regaining credit. If debtor repays the loan sincerely for more than 1 year, Credit Counseling & Recovery Service would support finance with low interest(4%).

*(2010) 70 billion → (2011) 90 billion → (2012) 100 billion

l  If debtor cannot get the support with low interest, finance authority would reinforce the cooperation to make debtors get the Sunshine Loan.

l  Expand the scope of applicants who could apply credit repair and readjustment for their credit at no cost. (cost of readjustment for emergency would be exempt for once and cost of apply for vulnerable class such as army would be free)

(Support of getting job for debtors)

l  It would be banned for using someone’s credit information as criteria in employing.

l  If someone’s loan is overdue, grace period (2 years) is given to debtors after graduation.

l  For university students, support for credit repair is allowed and delay the repayment period up to 2 years simultaneously with start of credit repairing.

As mentioned above, financial authority is trying to help university students by alleviating the burden of debt. Status quo, if student’s loan is more than 6 months overdue, that overdue information is recorded in Bankers Association.But there are 2 problems.

1. If the students apply for the loan and cannot repay the debt for his/her family reasons, there is a difficulty to get a job.
2. If there is a difficulty to get a job due to the overdue record, It makes much more hard to repay the loan

Financial authority suggests some ways to deal with these problems.

1. Promote the way that delay specific period of registration in Banker Association even if it’s the normal school expenses which are provided by Korea Student Aid Foundation(KOSAF).
2. Concrete period, procedures are going to be discussed with Bankers Association and KOSAF.

  City of Seoul has already notified that they will support 4.1 billion-won up to 30 thousand people who got the loan from KOSAF. According to Seoul city, the purpose of doing this support is that those students who should pay for the interest might have the potential to be the delinquent borrower in the future. The applicants could be university students whose household income is less than 52 million-won. But, if there are more than 3 children, regardless of household income, Seoul city offers the 50% of interests. There would be no Separate application procedures including check for requirements. Only if the student who graduated from high school which has no advance information is in college outside the Seoul, there would be separate procedure. Also, they support not only students whose address is in Seoul but also students who are going to university in Seoul but their address is not in Seoul.  Related inquiry could be reached at 02-2171-2995~6.

Ju Hyun Han (blackhall4@naver.com)

Status quo, the numbers of cards that are distributed in market increased 11.5% compared to last year. This phenomenon was caused due to cutthroat competition among card companies. They are trying to expand their size of company and during that process, companies do not consider consumers’ credit rating which is threatening consumers’ credit.

But, now it’s hard for card companies to issue credit cards easily to consumers. In past, because of the loose credit standards, there were actually few limits regarding issuing credit cards to people who were considered as having low repayment capability. However, the department of Financial Supervisory Service made new and strict guidelines.

The departments of Financial Services Commission and Financial Supervisory Service have designated 4 parts that are going to be supervised. Each of them is <Assets of loan>, < limits of using credit card>, <numbers of credit card> and <cost of marketing>. Specific policies include limits of using credit cards per year to 5% and limits of increasing numbers of credit cards to 3%.

Increasing rate of loan portfolio is controlled between 2% and 3%. The main reason of this regulation is number of credit cards. As said above, increasing rate of numbers of credit card was 11.5%, as a result, total numbers of credit card are 120 million which is 5 times more than economically active populations. But regarding this regulation, there are some controversies.

First, many regulations are absolutely advantageous to ‘leading companies’. When it comes to issuing new card to 3%, leading card companies do not care that much. But it could cause critical damage to other companies who have strived to increase the numbers of credit card. For instance, Shinhan Card can issue new 900 thousand credit cards because they already have issued 30 million cards. But compared to that, other companies who have issued 5 million cards, they can only issue 150 thousands credit cards.

Second, there is a rumor that regulation of increasing rate of loan portfolio was made to boost saving banks. By, restricting cards and cash advance could attract ordinary people to saving banks. Another claim that default rate of card companies are very low so it would rarely cause crisis also accelerates the conspiracy.

Regarding this issue, Card companies have shown strong opposition. “It could be regarded as direct interference to company”, “It means do not make profit”. Also, an official of one card company said “It makes other following companies hard to enter into market.”

But, to deal with excessive point policy, interest-free installment and other policies, strong regulations have been viewed as necessary solutions. As the captains of Financial Services Commission and Financial Supervisory asked for ‘strong and direct regulation’, these would be long-term measures.

In fact, officials of Financial Services Commission have already found 20 thousand improper cases and those cases were focused on big 6 companies including Shinhan, Hyundai, KB, Samsung, Lotte and Hana SK.

Financial Services Commission has been received the management plans from all card companies and those companies who have violated the rules more than 2 months, would be especially supervised.

한 주 현/ Han Ju Hyun/ blackhall4@naver.com

With a check of management efficiency, FSC decided to put cease and desist order to 7 mutual savings banks which are Jeil, Jeil2, Prime, Daeyeong, Ace, Parangsae, and Tomato.

The reasons are, first, except for Jeil2, 6 mutual savings banks’ BIS capital adequacy ratio are below criteria which is less than 1% and their debt is bigger than asset.

Regarding of Jeil2 mutual savings bank, BIS capital adequacy ratio is less than 1%, and liquidity deficit is definitely expected because its’ parent company, Jeil mutual savings bank, had a bank run due to suspension of business.

Main financial status of 7 mutual savings banks that has been ordered to suspend business

(Unit: one hundred million, %)

Main contents of cease and desist order are as follows.

1. From 11.9.18 to 12.3.17, suspension of business for 6 months(except for some tasks which are pertained to matured bill)
2. Performance of executives’ duties is suspended and designation of administrator (except for Jeil2).
3. Achieve BIS adequacy ratio more than 5% by issuing new stocks within 45 days.

FSC notified that there would be capital supports in normal mutual savings banks.

(Applicants): savings banks that are expected to continue their business with more than 5% of BIS capital adequacy ratio and that pass the deliberation by Korea Financial Corporation.

    Applicants of TSF

1. BIS ratio should be ranged from 5% to 10%.
2. Should not be supported by government or Korea Deposit Insurance Corporation.
3. Should not be ordered which are relevant to prompt corrective action.
4. Should not be large-scale enterprises or savings banks that are under the financial holding company

    Criteria of considerations: credit rating of company, optimality of capital, profitability, etc.

(Apply principles): support enough capital to savings banks to achieve 10% of BIS capital adequacy ratio.

1. Measures of support ordinary people

□ Focusing on 3 financial products for low-income house-hold in relevant local areas to solve the difficulty problem of financing so that people in low-income class do not have to be suffered.

1. Micro-Credit: largely expand the limit of support in local area.
2. Sunshine Loan: lead ordinary people-financial companies to expand handling Sunshine Loan
3. Seed of Hope Loan: let banks first support relevant local areas and then, manage the results of loan by FSS.

2. Measures of support local mid-sized companies.

□   Extend the period of trust guarantee funds and Korea technology credit guarantee.

*Regardless of total amount of Korea technology credit guarantee, support would be given up to one hundred million-won.

□   Expand loan for stabilizing business of bank of mid-sized company.

*Additional aid up to 3 hundred million-won per one company, give right to reduce interest rate for manager and plus right of 1%p more exemption.

□   Absorb demand of capital which belongs to loan traders using suspended savings banks by local banks.

□   If needed, expand the support of on-lending of KoFC to relevant local banks.

*Due to measure in February, this year, limit of on-lending for local banks increased from 1.4 trillion won to 2.4 trillion won.

Ju Hyun Han (blackhall4@naver.com)

Filed under: FIN_ancial POL_icy in Korea ]]> http://fsckorea.wordpress.com/2012/01/15/following-measure-of-7-saving-banks/feed/ 0 blackhall4 http://fsckorea.wordpress.com/2012/01/15/enhancing-the-protection-of-rights-of-financial-companies-and-consumers/ http://fsckorea.wordpress.com/2012/01/15/enhancing-the-protection-of-rights-of-financial-companies-and-consumers/#comments Sun, 15 Jan 2012 13:16:19 +0000 blackhall4 http://fsckorea.wordpress.com/?p=2795 ]]> Enhancing the protection of rights of financial companies and consumers

On 12/28/11, FSC decided to enhance the protection of rights of financial companies and consumers in the process of inspection and sanction. The main reasons for this decision is as follows

1. There has been criticism on the way of financial supervision which has been done by ‘Financial Supervision T/F’.

• Right of defense of financial companies has been admitted in restrictive cases.
• Released contents of sanction are not enough and scope of release is restrictive.

1. To solve these problems, FSC decided to implement 『Rules of inspection of financial companies and sanctions』 and 『Ways to expand the level of revealed sanctions』.

• Through 『Rules of inspection of financial companies and sanctions』, reinforce the rights of protection of financial companies, executives and staff members.
• By implementing 『Ways to expand the level of revealed sanctions』, stress the financial consumers’ right to know and prevention of illegal action by financial companies.

To see more detailed information, these are specified contents each of them (『Rules of inspection of financial companies and sanctions』 and 『Ways to expand the level of revealed sanctions』)

Revision of 『Rules of inspection and sanction』 includes 4 contents.

1. Guarantee the right of defense of executives in financial company and create the duty to care for statement.

• Whenever the confirmation document should be written, the right of support is guaranteed by lawyer etc.
• Whenever the confirmation document should be written, new obligation is created to care for the important statement as inspection record.

(Expected effect): This act could reinforce the right of defense of executives in the process of inspections, also, inspector of FSS could make careful progress.

1. Obligation to notify before the inspection.

• 1 week before the inspection, pre-notification including the purpose and expected period is obligated.
• (Exception): If the purpose of inspection seems hard to achieve because of the pre-notification, duty of pre-notification is not needed.

If it’s expected to have serious impact to achieve the purpose of inspection (manipulation of documents etc) If it’s regarded to bring bad effect to financial market (cause fear to investor etc) If there’s not enough time to pre-notification (inevitable case) If there are etc cases which makes hard to achieve the purpose of inspection

  (Expected effect): Financial companies and executives can have enough time before inspection.

1. New system of protecting rights

• Investigate the civil complaint regarding financial companies’ inspection in an independent position and prescribe the reason of establishing ‘center in charge of protecting rights’.

(Expected effect): Reinforce the legal procedures by preparing enough internal control methods related to inspections and control the possibility of illegal inspections.

1. New obligation to return the financial organizations’ books of FSS

• Specify the obligation of return if financial companies demand FSS to return the books which were submitted to FSS.

(Expected effect): Financial companies’ efficiency is improved since financial companies could get the books back whenever they want.

    As mentioned above, the contents of revealed sanctions were restricted. So to solve this problem, FSS made a 『Ways to expand the level of revealed sanctions』. The contents are as follows.

n  Adopt a new principle which reveals all data including the results of sanction.

l  Open even the minor disciplinary actions to public such as disciplinary warning of executives.

l  Reveal the contents of inspection as it is except for private information (name, resident regulation number, address etc).

   This is a tablet which summarizes the 『Ways to expand the level of revealed sanctions』.

So, through these new acts, right to know is highly improved due to the fact that financial consumers could know all the present conditions of sanctions imposed to financial companies and law abiding spirit of financial companies could be enhanced because the financial companies themselves could know the reasons of sanctions.

Ju Hyun Han (blackhall4@naver.com)

Filed under: FIN_ancial POL_icy in Korea ]]> http://fsckorea.wordpress.com/2012/01/15/enhancing-the-protection-of-rights-of-financial-companies-and-consumers/feed/ 0 blackhall4 http://fsckorea.wordpress.com/2012/01/14/fsc-plans-to-establish-financial-consumer-protection-act-2/ http://fsckorea.wordpress.com/2012/01/14/fsc-plans-to-establish-financial-consumer-protection-act-2/#comments Sat, 14 Jan 2012 05:17:31 +0000 kyoungminkim http://fsckorea.wordpress.com/?p=2786 ]]> In 2011, several saving banks of Korea had been bankrupted and it shocked Korean society. among these banks, Busan saving banks caused a lot of financial victims. Especially people who had bought subordinated bonds of the bank without any notification of risk of the bonds. This kind of event was not the first time in Korean financial market. From the beginning of 2000, There were various conflict between consumers and financial companies on the issue, incomplete and illegal sales of financial products. The most representative examples is incomplete sales of KIKO(Knock-In, Knock-Out) by banks to middle and small size companies. Both events drew public sympathy and necessity on consumer protection methods for financial consumers. To improve and change this repeating situation of the market, Financial Services Commission(FSC) presented a plan to establish Financial Consumer Protection Act on 17th of November, 2011.

Necessity of Financial Consumer Protection Act

Limitation of current supervising system

Under current financial supervising system, Sole supervising institution, Financial Supervisory Service(FSS) controls both financial institutions’ soundness and customer protection from financial frauds. If these role of the supervisory service works well, There would be no problem but in reality, These two functions are not balanced. Especially right after global economy crisis in 2008, the supervisory service choose to more focus on checking soundness of financial market. In other words, customer protection couldn’t be well handled. too much work for FSS caused the unbalanced operation of their functions.

For more, based on current regulation system, the regulations for each type of financial institution(banks, savings banks, insurances, etc) are separately operated. For example, regulations on saving banks and that on banking services are quite different. On the law of saving banks, there is no mention on obligation of financial company to explain detains of products to consumers which is already written on the law of banking services. This has caused serious problem like the conflict between authorities and consumers after Busan savings bank bankrupted. Busan savings bank had no duty to explain about subordinated-bond as they sold the products to consumers under the law of saving bank. This induced serious financial problems to consumers who just had chased high profit rates relying on the saving banks promotion slogan not detail explanation. After this event, financial authorities have felt the necessity of establish the new and integrated consumer protection law.

International flows on financial consumer protection

Through former global financial crisis, both external and internal financial authorities have re-recognized on the importance of consumer protection. United States , Australia, United Kingdom, Japan and some other countries are now focusing on consumer protection. This kind of flows has been more strong after G20 summit in Seoul, 2011 where countries have agreed upon improvement of consumer protection systems.

The most active countries on building the strict protection law are US and UK. those had established and now are operating distinct financial consumer protection institution.

Main Frame of Financial Consumer Protection Law

1) Information on the products Supporting

In the first phase, the regulator should support consumers by presenting sufficient    information so that the authority expect consumers to protect themselves from incomplete sales or frauds. to prevent consumers’ financial damage, financial products consultation service can be good channel for suggesting consumer information on personal asset management.

2) Purchasing Products by Consumers

In the second step, whatever products sold, the law and regulation should screen all of factors which would be related to incomplete sales so that the regulators can abolish the arbitrage profit of financial institutions from vagueness of the regulation.

3) Aiding consumers

When consumers get harmed financially by financial companies illegal, incomplete activities, FSS is in charge of dealing with solving the problems and conflicts. for the last phase, binding power of dispute settlement process would be hardened.

Details of Financial Consumer Protection Act

1. Classifying financial products and companies’ activities based on functions

To make concrete regulation system for consumer protection, FSC and FSS are going to re-sort financial products and companies’ activities based on their functions. Regarding products, both authorities would reorganizing all financial products and services which are served by financial companies into four parts. Furthermore activities of financial companies can be re-classified into several parts. Through this resorting process, the authorities expect to screen and regulate any incomplete sales factors as financial products and services are sold by companies.

2. Regulations on financial product sales

The main factor of this articles is that financial service company should consider consumer’s financial status. This is called principles of suitability and propriety on sales. As the financial company try to sell product to consumer, crucial point companies have to consider in this progress is to check consumer’s status such as credit rate, asset status, etc. For more, when consumer’s choice seems quite not adequate to his/her financial situation, the service company should let him/her know that is not proper.

Restrictive sales by financial companies would also be banned under the article. For example, the banks frequently suggest consumer who is willing to get some credit from the bank to make contract on the other specific products that is not directly related to the loan service by alluring consumer presenting low interest rate of loan service consumer willing to get.

3. Establishing Authorized Financial product consultation(advisory) service

Under the current financial regulation, consultation by un-authorized agency on financial products excluding financial investment products is not banned. to take arbitrage on this situation, some agencies(e.g. insurance agency) are offering consultation service to consumers and then taking commission per contract. The problem on this system is that the agencies are trying to sell the products which would be profitable for them not for consumers since there is no strict regulation on the agencies’ selling activities.

To fix this problem, the authorities are going to add the new business sector, Financial Product Advisory Service that would be under the regulation on the article to make the service be regulated strictly. FSC expects to present consumers new channel for receiving authorized general asset management service which would be faithful comparing to current agencies’ system.

To be an adequate consultation company, the service operator should prevent confliction of interest by opening names of financial companies that have relationship with the advisory service operator to public. And also, when the operator suggest products, it has to compare several products which seem equivalence to the product suggested.

4. Guarantying damage compensation responsibility

Financial giant as employer of agents should declare clear responsibility when the agents provoke financial problems to consumers. In other words, financial company has obligation to deal directly with their employees, the agents. under this regulation, when monetary loss occurred to consumers thorough illegal sales by the agents, not only the agents but also employers who have contract with the agents have responsibility of redemption on consumers’ damage. The range of responsibility and redemption has to be clear to consumers under the new consumer protection law.

5. Establishment of financial consumer protection institution under FSS

The authority considers to build the new institution (Financial Consumer Protection Institution) which takes full responsibility for financial consumer protection under FSS. Even though this organization would be under the control of FSS, it is fact that the agency would have more enforced right for personnel, budget and other activities such as investigation than before.

The role of this organization is mainly settling financial conflicts, educating financial market to consumers and dealing with consumers’ claims on financial companies. For more detail research on conflict and claims, the institution has rights to investigate financial companies. After the process where several problems detected needed to be bettered has done, the director of the institution can demand appropriate follow-up measures to FSC and FSS.

To make the new regulation regarding consumer protection strict, FSC can charge not only penalty fee but taking injustice profit earned though illegal actives back to consumers.

6. The others

FSC has responsibility to establish and operate financial consumer protection policies. And also the authority should take financial consumer education service as its obligation. FSC’s role on the education process is to serve education to consumers for leading them to make right choice whenever consumers face financial products and services. to let this role more solid, FSC would establish financial education committee under the collaboration with professions, financial organizations.

Kyoungmin Kim (k.kim@live.nl)