Financial Supervisory Service Holds Meeting on Real Estate PF Fee System Improvement
Abolition of Penalty Fees and Maturity Extension Fees
Fee Categories Simplified from 32 to 11
Borrowers Must Be Provided with 'Service Execution Plan and Results' Information
FSS Aims to Finalize in December and Implement from January Next Year
The Financial Supervisory Service (FSS) is pushing for institutional improvements to limit excessive real estate project financing (PF) fee charges by restricting fee imposition to services and work performed, and prohibiting fees repeatedly charged without service provision during maturity extensions. Additionally, fee items will be standardized into 11 categories, and efforts will be made to encourage transparent disclosure of fee-related information to borrowers.
On the 18th, the FSS held a meeting chaired by Senior Deputy Governor Lee Se-hoon with the financial and construction sectors to explain the institutional improvement directions prepared by the 'Real Estate PF Fee Task Force (TF).' The improvement directions include ▲limiting fee imposition targets ▲restructuring the fee system ▲expanding fee information disclosure ▲strengthening financial institutions' self-regulation functions. The TF, launched in May, includes participation from 8 financial associations (central associations), 4 construction-related organizations, external experts (lawyers and accountants), the Korea Housing Institute, the Construction Industry Research Institute, and relevant FSS departments.
Senior Deputy Governor Lee explained, "This institutional improvement aims to enhance the fairness and transparency of fees by restructuring the fee imposition system, limiting the PF fee imposition targets to service compensation." The financial authorities plan to finalize the improvement measures by December and implement the system across the entire financial sector starting January next year.
The FSS will first limit real estate PF fees to compensation for services and work performed. Accordingly, penalty fees and maturity extension fees, which have been indiscriminately charged, will be abolished. Penalty fees are charged when sales rates fall short, without any separate service performed. Maturity extension fees reflect increased loan risk upon extension but also involve no separate service. Additionally, arrangement and advisory fees repeatedly charged without service provision during extensions will be restricted.
An FSS official stated, "Costs that are not fees will be reflected in loan interest rates through credit screening and clear additional interest rate application standards during PF financing," adding, "Profit sharing will also be encouraged to be conducted through normal methods such as equity participation in development projects."
The fee system will also undergo significant revision. The FSS plans to integrate and simplify the current 32 fee items into 11 through defining and standardizing fees. This aims to increase fee reliability and comparability. For example, fees such as agent financial institution fees, fund management fees, agent bank fees, and agent office fees will be consolidated into 'Agent Financial Institution Fees,' while guarantee fees, debt guarantee fees, and credit provision fees will be merged into 'Guarantee Fees.'
Measures will also be promoted to transparently provide borrowers with information on PF service performance. When entering into a service contract, financial institutions must provide borrowers with detailed service plans, including schedules for ▲syndicate recruitment and composition ▲preparation and distribution of investor proposals and explanatory documents ▲support for negotiation and review of financial terms among syndicate members. Furthermore, financial institutions must internally manage evidence such as investor proposals and loan contracts reflecting actual service performance and progress during the contract period, and upon completion, provide the borrower with a service result report.
Moreover, the self-regulation function of financial institutions will be strengthened. The FSS will establish and operate basic internal control principles that financial institutions must comply with to prevent legal violations and enhance consumer rights, and will inspect compliance as necessary. Key items to be reflected in the model code include ▲matters related to the organizational structure responsible for fee calculation and imposition ▲procedures for verifying fee appropriateness, including compliance with the Interest Limitation Act ▲regular inspections to prevent unfair business practices such as 'kkeokgi' (forced loan switching).
Senior Deputy Governor Lee said, "With these institutional improvements, the construction industry will benefit from increased predictability of financial costs, which constitute a significant part of project expenses, facilitating smooth PF project progress. The financial sector will also see enhanced internal control functions related to fee imposition, reducing operational risks such as legal violations or disputes."
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