Bank Prepayment Penalties to Be Charged Only Within Losses and Actual Costs... Implementation by Mid-Next Year

Regarding the prepayment penalty fees charged when repaying bank loans early, an amendment to the supervisory regulations has been passed to ensure that such fees are imposed only within the actual costs incurred, such as losses caused by disruptions in fund management due to early repayment and administrative and solicitation costs related to the loan.

On the 10th, the Financial Services Commission held a regular meeting and announced the approval of the amendment to the "Supervisory Regulations on Financial Consumer Protection" aimed at improving the prepayment penalty fee system. Under current law, prepayment penalty fees can be exceptionally charged if the consumer repays the loan within three years from the loan date. However, the National Assembly and others have raised the need for institutional improvements, including establishing reasonable charging criteria.

Accordingly, the amendment stipulates that prepayment penalty fees may only be charged within the actual costs, such as losses caused by disruptions in fund management when repaying the loan early, and administrative and solicitation costs related to the loan. Typical examples include interest losses occurring during the period banks search for new loan sources, interest losses due to interest rate differences upon refinancing, stamp duties, and appraisal fees.

Additionally, the authorities improved related regulations to prohibit adding other items beyond these costs as unfair business practices under the Act on the Protection of Financial Consumers.

From now on, when repaying bank loans early, prepayment penalty fees will be charged only within the actual costs such as losses caused by disruptions in fund management and administrative and solicitation costs related to the loan. This amendment is scheduled to take effect from mid-next year.

A financial authority official stated, "To ensure the smooth establishment of the improved prepayment penalty fee system, we plan to prepare related guidelines together with the financial sector and also prepare for the disclosure of standards for calculating prepayment penalty fees and the status of imposition and exemption."