[Exclusive] Card Companies' Auto Installment Payments Surpass 5 Trillion Won Last Year... "Should Be Included in DSR Regulations"

Classified as "Additional Services"... Omitted from Statistics
Financial Supervisory Service Dismisses Calls for Revision, Citing Need for Caution

The amount of auto credit card installment payments by card companies surpassed 5 trillion won last year, marking a more than 50% surge compared to the previous year. There are growing calls for improvement, as auto installment plans by card companies are not included in the Debt Service Ratio (DSR), leaving them in a blind spot in household debt management.

According to data received by Assemblyman Yoo Youngha of the People Power Party from the Financial Supervisory Service on May 7, the amount of auto installment payments among the installment services offered by eight major dedicated card companies (Samsung, Shinhan, Hyundai, KB Kookmin, Lotte, Woori, Hana, and BC) reached 5.4485 trillion won last year. This represents a 55.5% increase from the previous year’s 3.5041 trillion won.

In particular, Hyundai Card ranked first in auto installment payments for the second consecutive year, recording 1.8568 trillion won last year, a 16.9% increase from the previous year’s 1.5879 trillion won. Samsung Card and Lotte Card also nearly caught up with Hyundai Card by expanding their auto card installment volumes two to threefold. Samsung Card increased its volume from 503.5 billion won in 2023 to 1.545 trillion won last year, about a threefold jump. Lotte Card also doubled its volume from 660.7 billion won to 1.206 trillion won over the same period.

Card companies argue that they have no choice but to strengthen their auto installment business to diversify their business portfolios and secure profitability. This is because it is difficult to maintain profitability through traditional credit sales and merchant fees alone. Products such as card loans, cash advances, and revolving payments (carrying over payment amounts) can increase delinquency risk due to worsening customer credit, making them burdensome.

The decline in funding rates has also served as a driving force for card companies to maximize their auto installment operations. As the aftermath of the 2022 Legoland crisis subsided, funding rates dropped to half their previous levels. According to the Korea Financial Investment Association, the average market interest rate for three-year remaining maturity asset-backed bonds (ABS) at the end of last year was 3.177%, about half of the 5.536% rate in 2022. This was also 64.4 basis points (1bp = 0.01 percentage point) lower than the 3.821% rate in 2023. For card companies, a drop in ABS rates means lower funding costs, making business operations much easier.

However, there has been ongoing criticism that card company auto installment plans are excluded from DSR regulations and therefore are not counted as household debt. While transactions handled under the “installment finance” account by card companies are included in the DSR, long-term auto installment plans by card companies-which can have loan periods of up to 60 months and are effectively long-term loans-are classified as “additional services” and thus not included in the DSR. This is because they are treated as installment payments for goods rather than as lending activities, and are therefore excluded from regulation. Additionally, there are complaints within the financial industry about fairness, as auto installment finance products offered by capital companies are subject to DSR regulations, unlike those offered by card companies.

A financial industry official said, “As about 5 trillion won in card company loans are omitted from the financial authorities' statistics, the blind spot in household lending is widening. Auto installment transactions processed under general card installment accounts, not installment finance accounts, should also be included in the DSR figures.”

The financial supervisory authorities believe that more review is needed regarding the inclusion of card company auto installment plans as DSR household loans. They are examining whether there is a problem, but maintain a cautious stance, noting that the issue is highly contentious and that hasty action could dampen domestic auto consumption. There is also a view that, with less than a month left until the 21st presidential election, it is difficult to push for rapid policy changes.

An official from the Financial Supervisory Service said, “We are reviewing the system, but no revision work is underway. Since we must also consider the government’s economic policy stance amid domestic demand stagnation, the issue of including auto installment plans in the DSR should be thoroughly discussed with relevant agencies.”