'Collection Frequency Limited to 7 Times in 7 Days'... Model Case of Personal Debtor Protection Act

Financial Authorities' Best Practices for Internal Bond Management Standards
Financial Firms Must Establish Standards by October 17

Financial authorities have prepared best practice internal guidelines ahead of the enforcement of the "Act on the Management of Personal Financial Claims and the Protection of Personal Financial Debtors." Financial companies are expected to refer to these guidelines when establishing their internal standards.

The Financial Services Commission and the Financial Supervisory Service announced on the 15th that, together with all financial sectors, they have prepared best practice internal guidelines (standard draft) as a follow-up measure to the enactment of the Personal Debtor Protection Act.

The law, which will take effect on October 17, includes provisions to activate financial companies' own debt restructuring, strengthen regulations related to debt sales, and restrict excessive debt collection. Financial companies must establish internal standards for five areas: debt transfer, debt collection, debt collection outsourcing, debt restructuring, and user protection.

First, regarding debt transfer, the guidelines require comparing costs and benefits among various debt handling methods such as debt transfer, collection outsourcing, and debt restructuring. They include criteria for debts subject to transfer, evaluation items for assignees, and the contents of debt transfer contracts. When a financial company transfers debt, it must provide accurate and complete information about the debt details to the assignee, including compliance requirements when providing information such as loan contracts and debt origin documents, to prevent harm to the debtor.

The internal standards for debt collection establish principles to protect debtors by requiring financial companies to understand the debtor's situation and provide reasonable and sufficient time for repayment in an appropriate manner. Compliance requirements also include restrictions on collecting debts that hinder debtor protection, a total collection limit restricting collection attempts to seven times every seven days, and a collection suspension system that allows for temporary suspension of collection in cases of disasters or accidents.

The internal standards for debt collection outsourcing stipulate the principle of good faith to prevent infringement of debtor rights and define the duties of the department responsible for collection outsourcing. They also include evaluation criteria, evaluation methods, and contract terms for selecting debt collection companies.

Additionally, the internal standards for debt restructuring include guidance, processing and notification, rejection, implementation support, cancellation of agreements, and requirements for outsourcing debt restructuring tasks. The user protection standards require debt collection companies and loan claim purchase collection agents to designate qualified protection supervisors and impose an obligation to establish procedures and standards to be followed during debt collection operations.

Each sector association will modify, supplement, and distribute the best practice internal guidelines considering their characteristics, and financial companies will refer to these to complete the establishment of internal standards before the enforcement date of the Personal Debtor Protection Act.

Financial authorities stated, "We plan to inspect whether each financial company has prepared internal standards before the law takes effect," and added, "We will continue to communicate with the financial sector and support the stable settlement of the Personal Debtor Protection Act."