P2P Companies Cannot Provide Loans Involving Banks... PeopleFund Ends Service

Financial Authorities Issue Binding Interpretation of 'Not Permissible' Under the OnTu Act Implemented Last Month

[Asia Economy Reporter Kim Min-young] Bank-linked loans by online investment-linked finance (P2P) companies are disappearing. This is because, with the enforcement of the Act on Online Investment-Linked Finance Business and Protection of Users (OnTu Act), core tasks such as loan contracts can no longer be outsourced to third parties. PeopleFund, the No. 1 company in the P2P industry, will also terminate its bank-linked credit loan service.

According to financial authorities and the P2P industry on the 20th, the Financial Services Commission recently issued an authoritative interpretation that the integrated bank-type P2P loan method is not operable under the OnTu Act and P2P loan guidelines. This is because, under the OnTu Act enforced last month, core tasks such as the review, approval, conclusion, and termination of linked loan contracts cannot be outsourced to third parties, nor can investment funds be transferred or provided as collateral.

Before the enforcement of the OnTu Act, P2P companies had no legal basis to directly issue loans, so it was generally possible to proceed with loans involving linked lending businesses. The structure involved collecting investment funds and giving them to a subsidiary lending company, which then executed the loan and collected principal and interest to return to investors. By involving safe banks to increase credibility, this gained considerable popularity among investors. A representative example is the "First-tier financial institution affiliated bank loan" operated by PeopleFund in partnership with Jeonbuk Bank.

However, with the introduction of the OnTu Act, P2P companies are required to directly serve as lending institutions, making it impossible to maintain such a business model. Accordingly, PeopleFund has decided to discontinue services such as the "First-tier financial institution affiliated bank loan." The company plans to introduce new loan products that comply with the new OnTu Act.

As of last month, PeopleFund's outstanding loan balance is 285.29 billion KRW (No. 1 in the industry), and the cumulative loan amount is 985.717 billion KRW (No. 2 in the industry).