Deposit Protection Limit Raised to 100 Million Won and Loans Tightened with Phase 3 DSR [Second Half Policy Changes]

Starting this month, the implementation of the Phase 3 Stress Debt Service Ratio (DSR) will make it more difficult to obtain loans. The deposit protection limit will be raised from the current 50 million won to 100 million won, and sentences for illegal private lending crimes?such as unregistered lending and violations of maximum interest rates?will be significantly increased.

On July 1, the Financial Services Commission announced that it would strengthen its household loan management policy, including the introduction of the Phase 3 Stress DSR, which has the effect of tightening household loan limits.

With the application of the Phase 3 Stress DSR, a stress interest rate of 1.5% will be added to all types of loans across the financial sector, including mortgage loans, credit loans, and other loans such as card loans and non-residential mortgage loans.

The Stress DSR is a system that calculates loan limits by adding a stress interest rate to the loan interest rate, reflecting the risk of future interest rate fluctuations. When the stress interest rate, which takes into account the risk of future interest rate volatility, is applied, the loan limit is effectively reduced.

If a real estate sales contract is signed by the end of the day, the previous regulations will apply. For regional mortgage loans, the interest rate of 0.75% will be maintained until the end of this year.

Yonhap News

The deposit protection limit will be raised from 50 million won to 100 million won for the first time in 24 years since 2001. This increase will apply not only to regular deposits but also to deposits in mutual finance institutions, retirement pensions, pension savings, and insurance claim payments, all of which will have a protection limit of 100 million won.

The taxation method for surrender refunds of long-term subscribers to the small business mutual aid system will change from other income taxation to retirement income taxation. This applies only to long-term subscribers (10 years or more) of the Yellow Umbrella Mutual Aid Fund whose reported business income for comprehensive income tax or corporate tax has decreased by more than 50% compared to the average of the previous three years.

An emissions trading brokerage business, which will allow companies to easily trade emission allowances through securities firms, will be introduced in November. The Ministry of Environment stated, "Previously, direct trading was only possible through the Korea Exchange, but now trading will be more convenient through securities firms registered as emissions trading brokerage companies. The introduction of consignment trading for emission allowances is expected to vitalize the emissions trading market."

The period during which companies with excellent governance can freely appoint auditors will be extended from the current 6 years to 9 years. When applying for debt adjustment through the Credit Counseling and Recovery Service, not only financial debts but also overdue electricity bill debts will be included in the debt adjustment.

Anti-social lending contracts involving sexual exploitation, human trafficking, bodily harm, or ultra-high interest rates of 60% or more per annum will result in the complete invalidation of both principal and interest. Even if a contract does not fall under anti-social lending, all interest agreements with illegal private lenders will be invalidated, thereby strengthening relief for victims.

Sentences for illegal private lending crimes, such as unregistered lending and violations of maximum interest rates, will be significantly increased. For unregistered lending, the maximum penalty will be 10 years in prison and a fine of 500 million won. For violations of the maximum interest rate, the penalty will be 5 years in prison and a fine of 200 million won.