FSS Also Demands Interest Rate Calculation System Management
Improvements to Be Reported Within 3 Months, Advisories Within 6 Months
Hyundai Card: "We Will Address the Issues Identified"
Hyundai Card has been instructed by the Financial Supervisory Service (FSS) to pay close attention to the soundness and credit limit management of card loans, which serve as a financial lifeline for ordinary citizens, and to improve its card loan interest rate calculation system.
According to financial authorities and the credit card industry on May 25, the FSS notified Hyundai Card of eight management advisories and fifteen improvement items following its regular inspection.
First, the FSS directed Hyundai Card to closely monitor the current status of card loan soundness and to strengthen its management of card loan limits.
According to the Credit Finance Association, Hyundai Card's outstanding balance of card loans as of the end of September last year was 5.6378 trillion won, an 18% increase compared to the end of the previous year (4.7762 trillion won). In the same period, the average increase in card loan balances across nine card companies (Lotte, BC, Samsung, Shinhan, Woori, Hana, Hyundai, KB Kookmin, and NH Nonghyup Card) was 7.8%, meaning Hyundai Card's growth rate was twice as high.
The FSS pointed out that the proportion of low-credit borrowers among Hyundai Card's card loan users has increased, and that the outstanding balance held by multiple-debt borrowers has also grown. The FSS criticized Hyundai Card for insufficient risk management in its operations. It also noted cases where the amount available for card loan borrowing was calculated based on factors not directly related to creditworthiness. Card companies are required to differentiate the available loan amount based on creditworthiness and other relevant factors when issuing card loans.
The FSS demanded that Hyundai Card closely monitor the status and delinquency rates of card loans extended to low-credit and multiple-debt borrowers. It also instructed the company to strengthen credit limit management by considering creditworthiness and repayment ability when calculating loan limits.
The FSS further called for stronger risk management for low-credit borrowers. Hyundai Card's revolving payment carryover balance has started to rise, and the proportion of low-credit borrowers subject to the minimum payment ratio of 10% has surged compared to the end of the previous year, raising concerns about a potential decline in repayment ability.
The FSS also instructed Hyundai Card to reflect its organizational structure and business procedures related to financial consumer protection in its internal regulations. To prevent excessive marketing of private label credit cards (PLCCs), the FSS advised Hyundai Card to rationally share point-related costs with partner companies and to strengthen controls over partner companies' customer information management systems.
Additionally, the FSS required improvements to Hyundai Card's internal rules regarding the interest rate calculation system and called for enhanced management of interest rate inversion cases. This was prompted by instances in which borrowers with higher credit scores were charged higher interest rates than those with lower scores during the card loan sales process. The FSS also ordered Hyundai Card to improve its internal policies and operational practices regarding interest rate reduction requests, and to revise its approach to imposing sanctions on branch managers where illegal solicitation occurred.
Hyundai Card is required to report the results of its corrective actions on improvement items within three months and on management advisories within six months to the FSS.
A Hyundai Card representative stated, "We plan to implement corrective measures for the issues identified in this inspection," adding, "We will further strengthen our management focus on soundness, based on proactive risk management."
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