"Illegal Street Recruitment Surges with 'Get Money When You Make a Card' Offers"

Financial Supervisory Service Fines 363 Recruiters at 6 Card Companies for Regulatory Violations
Concerns Rise Over Resurgence of Illegal Activities Disappeared Since 2003 Card Crisis

[Asia Economy Reporter Kangwook Cho] More than 300 credit card solicitors from major card companies, including industry leader Shinhan Card as well as Samsung, KB Kookmin, Woori, Lotte, and Hana Card, have been collectively sanctioned. It was revealed that they provided prizes such as drones, electric kickboards, and gift certificates, as well as cash rewards of up to 200,000 KRW as conditions for credit card issuance. Furthermore, street solicitation by card companies, which had disappeared after the credit card crisis in the early 2000s, has been resurging.

According to financial authorities and the financial sector on the 20th, the Financial Supervisory Service recently imposed fines on a total of 363 credit card solicitors from six card companies for violating annual fee cashback regulations.

Under the current Specialized Credit Finance Business Act Articles 14, 14-2, 14-5, and Enforcement Decree Articles 6-7, 6-8, credit card solicitors are prohibited from engaging in street solicitation, recruiting credit card members for entities other than their affiliated credit card company, having others recruit credit card members on their behalf or outsourcing such recruitment, or providing or conditioning recruitment on economic benefits exceeding 10% of the credit card annual fee.

However, the solicitors who were sanctioned this time were found to have provided customers with cash or prizes far exceeding the prescribed limits from 2015 to 2017 to attract more members. The cash amounts ranged from a minimum of 50,000 KRW to a maximum of 200,000 KRW. A total of 289 individuals were sanctioned for violating the annual fee cashback regulations.

For example, a solicitor named Choi from a Samsung Card branch was caught on March 6, 2017, recruiting a VIP credit card member with an annual fee of 600,000 KRW by offering 200,000 KRW in cash. A solicitor named Ra from a Hana Card branch handed over 190,000 KRW in cash on September 29, 2016, to open a credit card with a 150,000 KRW annual fee. Additionally, a solicitor named Kim from a Shinhan Card branch provided a drone worth 200,000 KRW on March 26, 2016, to recruit a credit card member with a 10,000 KRW annual fee. In the case of KB Kookmin Card, 120,000 KRW in cash was provided as a condition for opening a card with a 15,000 KRW annual fee.

Street solicitation, which was banned after the 2003 "card crisis," has also been found to be on the rise again. The number of solicitors sanctioned for street solicitation this time was 21. The "card crisis" refers to the early 2000s incident when card companies indiscriminately recruited credit card members, leading to massive defaults. At that time, the government significantly relaxed card regulations to stimulate the domestic economy, which had contracted after the foreign exchange crisis. They abolished credit card cash loan limits and allowed street member solicitation. As a result, card companies indiscriminately issued cards even to students without income. During the "blind issuance" period in 2002, the number of credit cards exceeded 100 million. Subsequently, a massive household credit card loan default crisis erupted, plunging many people into debt, and over 3 million people became credit delinquents (currently financial debt defaulters). Moreover, at that time, Korea Exchange Bank was sold to the hedge fund Lone Star due to the bad debts of Korea Exchange Card.

In addition, 38 individuals who outsourced credit card member recruitment to others and 15 who violated the exclusive affiliation rule by recruiting members of other card companies they were not affiliated with were fined. By affiliation, the numbers were as follows: Samsung Card 127, Lotte Card 80, Shinhan Card 67, KB Kookmin Card 40, Hana Card 30, and Woori Card 19.

Financial authorities are closely monitoring the high-cost marketing practices of card companies. On the 29th of last month, Eun Sung-soo, Chairman of the Financial Services Commission, met with CEOs of the specialized credit finance industry and pointed out, "While profits are in a low-growth trend, the marketing costs of card companies are increasing by more than 10% annually. The industry and authorities must work together to correct these high-cost marketing practices."

The marketing cost growth rates of card companies were 10.8% in 2016, 13.7% in 2017, and 10.3% in 2018. In particular, the proportion of marketing costs within merchant fees has been steadily increasing, accounting for 48%, 52%, and 55%, respectively.