Enforcement of the Act on Management of Personal Financial Claims and Protection of Personal Financial Debtors
Institutionalization of Financial Companies' Own Debt Adjustment System, Reduction of Overdue Interest Burden
Restriction on Additional Transfers of Claims Transferred More Than 3 Times... Collection Contact Limited to 7 Times in 7 Days
3-Month Guidance Period Granted... Sanctions Planned for Intentional or Gross Negligence During Guidance Period
A Personal Debtor Protection Act, which allows debtors to directly request debt adjustment from financial companies, reasonably reduces the burden of overdue interest, and restricts excessive debt collection, will be fully implemented. The Financial Services Commission plans to grant a three-month grace period after the Personal Debtor Protection Act takes effect and operate a monitoring team to continuously support the successful establishment of the Act in financial practice.
On the 16th, the Financial Services Commission announced that the "Act on the Management of Personal Financial Claims and Protection of Personal Financial Debtors (Personal Debtor Protection Act)" and its enforcement decree will be enforced on the 17th. The Act focuses on ▲ institutionalizing financial companies' own debt adjustment systems ▲ alleviating excessive interest burdens due to delinquency ▲ strengthening regulation on claim transfers ▲ improving unfavorable collection practices.
The Personal Debtor Protection Act encourages the activation of financial companies' own debt adjustment. Debtors who are overdue on loans under 30 million KRW will have a newly established right to request debt adjustment, enabling them to recover simply and quickly. Financial companies must notify debtors before taking claim recovery actions that significantly affect the debtor's rights and obligations, such as loss of benefit of term, application for housing auction, or claim transfer, and inform them of the right to request debt adjustment. If the debtor requests debt adjustment, the benefit of term is considered not lost until the debt adjustment procedure is completed, and applications for auction on the relevant housing and transfers of the relevant claim are restricted.
Additionally, to prevent passive debt adjustment reviews by financial companies and to induce consistent reviews, financial companies are required to establish and implement internal standards for debt adjustment. Financial companies must notify the debtor of whether the debt adjustment will be made within 10 business days from the date of receiving the debt adjustment request, encouraging efforts to normalize the debt rather than routinely selling the claims.
However, to prevent moral hazard by debtors, debt adjustment may be refused if the debtor fails to supplement the debt adjustment request documents three or more times or if less than three months have passed since the cancellation of the debt adjustment agreement. For effective protection of debtors, financial companies must guide debtors to court rehabilitation or the Credit Counseling & Recovery Service's debt adjustment even when refusing debt adjustment.
After an agreement on debt adjustment is established between the financial company and the debtor, if the debtor fails to comply with the repayment plan for more than three months without special circumstances, the financial company may cancel the debt adjustment agreement. However, in cases of special circumstances such as hospitalization or unemployment, the agreement can only be canceled if the repayment plan is not followed for more than six months.
Prohibition of 'Overdue Interest' on Loans Under 50 Million KRW with Unmatured Terms
The Act also opens a way to alleviate excessive interest burdens caused by overdue payments. For debtors overdue on loans under 50 million KRW, the method of imposing excessive interest due to delinquency is improved to reduce their debt burden. Even if the benefit of term is lost due to loan delinquency, overdue interest cannot be charged on the portion of the debt whose term has not yet matured. A Financial Services Commission official explained, "We aimed to restrict the practice of demanding immediate repayment of the entire principal and charging overdue interest on the entire loan balance upon loss of benefit of term."
Furthermore, for claims that are uncollectible or have a significantly low likelihood of collection, such as tax-deductible claims, future interest claims must be waived before transfer and included in the transfer contract. To allow financial companies to deduct these claims as expenses, they must write off the claims. For companies without write-off standards, such as lending companies, claims overdue for more than one year without repayment history within one year must have future interest waived upon transfer. This is intended to prevent financial companies from continuing to charge interest while writing off claims as uncollectible and receiving tax benefits (corporate tax deductions).
Restriction on Additional Transfers of Claims Transferred Three or More Times... Reduced Exposure to Illegal Collection
Moreover, the Personal Debtor Protection Act prohibits the transfer of claims when it significantly affects debtor protection. The enforcement decree bans the transfer of claims with unclear claim-debt relationships, such as identity theft, and restricts habitual and repetitive claim sales by financial companies. Market experts have pointed out that during repeated transfers of claims to lending companies, debtors are gradually subjected to increasingly aggressive collection, and the risk of illegal collection increases due to weak internal controls of some companies.
Therefore, in addition to "claims under debt adjustment" regulated by law, the transfer of "claims transferred three or more times" is restricted. The Financial Services Commission expects that this will reduce the likelihood of debtors subjected to long-term collection being exposed to intensified or illegal collection after claim transfers, as well as reduce personal information leaks and debtor confusion caused by repeated claim transfers.
Collection Frequency Limited to 7 Times in 7 Days, Implementation of Collection Quota System
The Personal Debtor Protection Act also includes provisions to limit excessive collection and guarantee the debtor's normal life. To protect debtors from excessive collection by financial companies, the Act stipulates ▲ restrictions on collection of claims that harm debtor protection during collection ▲ a collection quota system limiting collection contacts to 7 times in 7 days ▲ a collection suspension system that defers collection for a certain period in cases of disasters or accidents ▲ the right to request restrictions on collection contact types, such as not contacting during specific times or by specific means.
Specifically, collection is prohibited if it harms debtor protection or healthy credit order when collection is allowed. If the debtor has received debt adjustment (financial company's own debt adjustment, Credit Counseling & Recovery Service debt adjustment, court rehabilitation), collection on the relevant claim is prohibited as it indicates the debtor's intention to repay faithfully.
Additionally, debt collectors must not contact the debtor more than 7 times in 7 days per claim. Contact methods such as visits or phone calls to the debtor for collection purposes count toward the collection frequency, but certain cases are excluded to avoid significantly hindering collection purposes. Mandatory notifications under laws, responses to debtor inquiries, and cases where collection contact does not reach the debtor are excluded from counting.
Furthermore, if the debtor is in a difficult situation such as disaster, surgery, hospitalization, marriage, or funeral of the debtor or their spouse's direct ascendants or descendants, the debt collector must suspend collection for an agreed period within three months between debtor and creditor. Collection contact cannot be suspended if there is no legitimate reason such as failure to reach the debtor or if the suspension is intended to significantly delay or hinder collection.
Debtors may request debt collectors not to contact them during specified time periods within a weekly limit of 28 hours. Debtors can specify up to two means of contact?such as visits to a specific address, calls to a specific phone number, text messages to a specific phone number, emails to a specific email address, or faxes to a specific fax number?to be restricted from collection contact.
Meanwhile, the Financial Services Commission plans to grant a three-month grace period after the Act's enforcement to ensure its establishment. It is also considering extending the grace period by an additional three months if necessary, based on comprehensive review of law enforcement status. However, violations during the grace period will be sanctioned to prevent the law's purpose from being undermined.
A Financial Services Commission official said, "The Commission will operate a monitoring team to support the law's establishment in financial practice," adding, "The team will continuously monitor the law's enforcement status and promptly respond to field difficulties."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
