‘Legalizing the revised enforcement ordinance of Private Lending Business Law’

 On the 27th July, 2011, Financial Services Commission (FSC) announced they are planning to legalize the partially revised bill about the Private Lending Business Law to reduce a burden, caused by high interest, for ordinary people. FSC has a plan to bring the new law into effect within the second half of the year. Seo Tae Guk, a Director of the FSC, said that they have made this plan to improve the current high-interest structure of small-loan finance by fully revising an old mediation practice.

Major items are below:

First, the brokerage fee has been gradually increasing because private lenders tend to provide loans through brokerage agents. At the end of 2010, the number of registered private loan firms were 4,029(2% increased compared to Dec, 2009), among the top 13 lenders the ratio of attracting new customers through agents accounted for 78%. FSC is going to apply 5% limit on the brokerage commission. The brokerage commission means the fees that brokers receive from private lenders in return for connecting them with customers. And also, they will prohibit the multilevel mediation which made the current high brokerage fee, 7 to 10%.

 *research result of top 13 private loan firms (Jan, 2011)

 

Second, FSC is going to tighten up the requirement for registration as a private lender in order to prevent illegal loan businesses in advance. With this item, loan firms cannot reregister for 6 months after reporting the closure of business. FSC also imposes them compulsory education courses if the company’s owner is changed.

According to the revised bill, private lenders will have a duty to inquire into the capacity of borrowers for repayment if they loan over 3 million Won, that was increased from 5 million Won. FSC pointed out that the lenders have been over-financing, exceeding borrowers’ ability to redeem.

And also, private lenders will have to put warning signs that alert the risk of loans when they advertise their businesses on TV or other paper methods. They must choose one of those three sentences; ‘excessive debt, it’s a shortcut to becoming a delinquent borrower’, ‘excessive debt, it’s a beginning of pain’, ‘excessive debt might be able to bring you a series of unhappiness’. And these warning messages should be shown more than one-fifth of whole advertising time on TV commercial. Besides, all kinds of ads should include ‘Private Loan’ or ‘Private Loan Mediation’ with company name on the top left of the ads.

Above this, the loan firms cannot use the expressions that might make people mistake them for financial institutions, and advertise by sending text messages. According to Mr. Seo, the ads through the text message are causing an impulsive loan. Furthermore, FSC is planning to discuss with Justice Department about forfeiting all interests that loan sharks took from borrowers illegally. Justice department will announce its official position soon.

If this bill doesn’t reflect market conditions well, it might cause that the loan firm can be converted to loan sharks and people in low credit cannot help using the high-interest loan. Therefore, we need to keep an eye on the change of the market conditions and apply it carefully so that people in low income can benefit from the revised bill.

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