Unfair 'Jungdosanghwan Susooryo' Will Be Changed

Financial Supervisory Service Holds 'Fair Finance Promotion Committee'
Uniform 0.5%~2.0% Fees in Secondary Financial Sector
Debt Collection Eased for Victims of Coercive and Fraudulent Loans

The Financial Supervisory Service (FSS) is set to improve the uniform early repayment fee system in the secondary financial sector to reduce the burden on financial consumers and to address damages suffered by insurance policyholders due to insurance replacement contracts (switching policies).

Guidelines will be established to prevent unfavorable clauses for consumers in settlement agreements made between insurance companies and financial consumers, and policies will be promoted to ease debt collection on crime victims who took out loans under coercion or fraud.

On the 30th, the FSS held the first 'Fair Finance Promotion Committee' meeting to deliberate on five tasks aimed at improving unfair financial practices related to early repayment fees and insurance contracts, and protecting financially vulnerable groups. The 'Fair Finance Promotion Committee' is a deliberative body chaired by the head of the FSS Consumer Protection Department and includes external members such as Jeong Un-yeong, chairman of the Financial Happiness Network, and Kim Ji-a, an economic and financial YouTuber, along with the deputy director in charge of consumer protection.

The FSS plans to improve the practice of uniformly imposing early repayment fees ranging from 0.5% to 2.0% on mobile loans in the secondary financial sector, including savings banks, mutual finance, and credit card companies, to compensate for opportunity costs and loan handling fees caused by disruptions in fund management when early repayment occurs.

Currently, mobile loans are often charged early repayment fees at the same rate as branch loans, or credit loans without mortgage registration fees are charged early repayment fees at levels similar to secured loans. Such unreasonable practices may limit consumers' opportunities to repay loans early or switch to loans with better conditions when they have surplus funds.

Accordingly, the FSS will gather industry opinions in line with the banking sector's institutional improvements and establish guidelines reflecting only actual incurred costs to enhance the rationality and transparency of the fee system. Early repayment fees will be thoroughly explained at the time of loan solicitation and contract, and the status of fee imposition or exemption and calculation criteria will also be disclosed.

The FSS will also improve the system to assist victims of insurance contracts whose waiting periods have been unreasonably extended due to insurance replacement contracts. Policyholders with chronic diseases such as hypertension can subscribe to insurance with certain waiting periods (coverage restrictions) for specific diseases or body parts. However, when they cancel an existing contract and enter into a new contract with similar coverage with the same insurance company, the waiting period is often recalculated from the new contract date, resulting in unreasonable conditions.

In fact, an inspection of replacement contracts with waiting period riders by life and non-life insurers from 2017 to May 2023 found about 32,000 contracts where the waiting period was unreasonably extended.

The FSS plans to reduce the waiting periods for all contracts where the waiting period was unreasonably extended through a full survey of replacement contracts with the same insurer and to pay insurance benefits for cases where benefits were not paid during the unreasonably extended waiting period. The system will also be improved so that the waiting period for new contracts is set considering the elapsed waiting period of the existing contract at the time of replacement.

In cases where insurance companies and financial consumers mutually concede and enter into settlement agreements, the FSS will improve unfair business practices such as consumers misunderstanding the simple agreement and filing complaints denying the contract's validity, or insurance companies including unfavorable clauses that restrict insurance claims.

To prevent recurrence of such cases, the FSS will gather opinions from the financial industry and prepare a 'Settlement Agreement Guideline (tentative name)' to be complied with by insurance companies. The guideline is expected to include: ▲ including explanatory notes on the effect of the settlement agreement in the contract and providing detailed explanations ▲ using titles that clearly indicate the meaning of settlement in the contract and specifically stating the basic requirements of the settlement agreement such as parties, dispute subject, and settlement content ▲ avoiding clauses that are unfairly disadvantageous to insurance consumers and specifying the debt fulfillment deadline as 'within a reasonable period' to prevent avoidance of delayed interest burden.

The priority order of automatic withdrawal payments for loan principal and interest repayment will be revised to favor financial consumers. Although banks set the priority order for automatic withdrawals through terms and conditions, there is no processing order or clear criteria among withdrawals with the same priority, causing consumer harm.

The FSS will collect opinions from the financial industry to amend terms and conditions and improve IT systems so that the processing order of automatic withdrawal payments for borrowers with two or more loans is favorable to consumers, and will accurately inform consumers of the withdrawal order.

Furthermore, the FSS will prepare measures to ease debt collection by financial companies for crime victims who took out loans against their will due to coercion or fraud. There have been frequent cases where financially vulnerable groups are confined or oppressed, or young adults are lured with job offers to take out loans and then defrauded of the loan proceeds.

The FSS plans to establish exemplary procedures and internal regulations allowing financial companies to defer debt collection for crime victims when the borrower's victim status is objectively confirmed.

Kim Mi-young, head of the FSS Consumer Protection Department (chairperson), said, "We have reviewed financial transaction practices that were taken for granted from the perspective of financial consumers and prepared fair and reasonable improvement measures." She added, "We ask that the progress of improvement tasks be continuously monitored and reported to ensure smooth implementation, and that hidden unfair financial practices infringing on consumers' rights be actively identified."