Exclusion of Exclusive Obligation for One Lease and Installment Finance Company... Relief for Small and Medium-Sized Capital Firms

Enforcement of the Financial Consumer Protection Act from March Next Year
Financial Services Commission Accepts Industry Opinions

[Asia Economy Reporter Ki Ha-young] Small and medium-sized capital companies are breathing a sigh of relief as lease and installment finance agents are excluded from the single-company exclusivity obligation under the Financial Consumer Protection Act (FCPA), which will be enforced starting this March.

According to the financial sector on the 20th, the Financial Services Commission recently approved the enforcement decree of the Financial Consumer Protection Act and decided to exclude loan brokerage agents and lease/installment finance agents from the single-company exclusivity obligation regulation.

The single-company exclusivity obligation is a regulation that requires loan agents to sign agreements with only one financial company and sell only that company's loan products. It was introduced to prevent loan agents from recommending disadvantageous products to consumers in order to increase their commission income.

Initially, financial authorities planned to include loan brokerage agents and lease/installment finance agents, who had not been subject to the single-company exclusivity obligation unlike banks and insurance companies, in the law's scope after a two-year grace period. However, during the legislative notice process, they accepted industry opinions that mandating single-company exclusivity for lease/installment finance agents would cause market confusion. The financial authorities plan to refrain from applying the single-company exclusivity obligation to loan brokerage agents and lease/installment finance agents for the time being, while monitoring their business practices, the application of the Financial Consumer Protection Act, and market conditions.

With lease/installment finance agents excluded from the single-company exclusivity obligation, small and medium-sized capital companies have gained some breathing room. In automobile lease and installment finance, car dealers mainly act as loan agents. If single-company exclusivity were mandated, there were concerns that customers would flock to large companies such as Hyundai Capital, a captive company of Hyundai Kia Motors, and KB Capital, which partners with Jaguar, Land Rover, and Korea GM. If the single-company exclusivity obligation applies, agents partnering with Hyundai Kia Motors, which sells many cars domestically, would only be able to introduce Hyundai Capital's products. Additionally, large companies have greater marketing capacity and advantages in securing agents.

An industry insider said, "Agents usually introduce loans from multiple financial companies and receive commissions as compensation when loans are executed. Small and medium-sized capital companies, which have difficulty securing agents compared to large companies, are relieved to be excluded from the single-company exclusivity obligation."