"Closing a Business and Reopening It?"... Strengthening Re-entry and Registration Requirements for Loan Businesses

Loan Business Re-registration Restriction Period Extended from 1 Year to 3 Years
New Provisions for Reporting Changes in Human Capital and Terms
Number of Small Loan Companies Affiliated with Local Governments Expected to Decrease

[Asia Economy Reporter Song Seung-seop] A plan is being promoted to extend the restriction period for loan sharks to re-register after closing their business from 1 year to 3 years, strengthen personal requirements, and establish penalty regulations for the obligation to disclose terms and conditions.

On the 24th, Yoo Dong-su, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, took the lead in proposing a partial amendment to the "Act on Registration of Loan Business, etc. and Protection of Financial Consumers" containing such content. The bill was also proposed in the 20th National Assembly but was automatically discarded due to the expiration of the term.

The amendment mainly increases the restriction on re-registration of closed loan businesses from 1 year to 3 years. This is to prevent reckless re-entry by loan sharks and brokers. Some loan companies have been buying a large number of loan claims and then closing their business, acting as creditors under civil law. They exploit the fact that creditors under civil law can also perform collection duties to evade financial authorities' regulations. If the bill passes, such indirect operations will become difficult.

Registration requirements will also be strengthened. Currently, anyone can work as a loan shark as long as they have the "social credit" prescribed by the Presidential Decree. They only need to have no criminal record for violating financial-related laws or no history of being designated as a failed financial institution. The amendment changes "social credit" to "personnel and social credit." It forces loan companies registering with the Financial Services Commission to possess certain human resources when entering the market.

Prohibition of Evasive Operations and Requirement of Human Capital... Small Loan Companies Expected to Decrease

Depending on the degree of human resources required by the Presidential Decree, it is expected that many companies will fail to comply with the law. An industry insider explained, "Large companies with strong business capabilities will not be greatly affected by the amendment," but added, "If the scope expands to appointing compliance officers without separate capital distinctions, small local loan companies will inevitably suffer significant damage."

According to the Financial Supervisory Service, there are currently 10,164 registered loan companies. Among them, 1,311 companies are registered with the Financial Services Commission, corresponding to those engaged in debt collection, having assets exceeding 10 billion KRW, or operating in two or more cities/provinces. The remaining 8,853 are affiliated with local governments, equipped only with small capital and on-site offices. This is why there is an analysis that the industry is likely to be rapidly reorganized due to the amendment.

Additionally, loan sharks will be obligated to report to the Financial Services Commission within 10 days if they revise terms and conditions. A fine of up to 30 million KRW will be imposed if the terms and conditions are not properly implemented.

Representative Yoo stated, "The loan market is a place that lends high-interest funds to low-credit and low-income vulnerable groups," and expressed, "We will strengthen entry regulations into the loan market and secure the effectiveness of the supervisory system by supplementing deficiencies."