FSC Discusses Early Repayment Fee Reductions with Mutual Finance Institutions

78% of Self-Employed Loans Held by Mutual Finance Institutions
FSC Considers Revising Supervisory Regulations

The Financial Services Commission convened mutual finance institutions to discuss measures to reduce early repayment fees in order to ease the loan interest burden on small business owners and others. As the participation rate of mutual finance institutions, where the proportion of loans to small business owners is high, has been low in lowering early repayment fees, the authorities are considering revising the supervisory regulations under the Financial Consumer Protection Act (FCPA) or issuing administrative guidance.

According to the financial sector on July 31, the FSC summoned key mutual finance industry representatives, including NongHyup, Saemaul Geumgo, and Suhyup, the previous day to discuss the extent and timing of early repayment fee reductions. The FSC is expected to announce the timing and detailed plans for introducing early repayment fee reductions in the mutual finance sector soon.

On July 17, during an on-site meeting to support small business financing, the FSC announced that it would expand the scope of early repayment fee reductions to include mutual finance institutions.

Following last year's FCPA amendment, from January this year, early repayment fees for most financial institutions have been significantly reduced to a level within the actual loan-related costs.

However, among mutual finance institutions, only credit unions, which are subject to the FCPA, have lowered their early repayment fees, while others such as NongHyup and Saemaul Geumgo have not. The central organizations of NongHyup and Saemaul Geumgo recommended that their individual cooperatives participate in lowering early repayment fees, but since the recommendation is not mandatory and there is little incentive to participate, adoption has been low.

Due to the low participation of mutual finance institutions, there are concerns that the effectiveness of financial support policies for small business owners is being undermined. According to the Bank of Korea's Financial Stability Report, as of the end of the first quarter of this year, out of a total of 425.7 trillion won in self-employed loans from non-bank institutions, loans from mutual finance institutions accounted for 332.5 trillion won, or about 78%.

The government attempted to amend the FCPA to apply it to mutual finance institutions such as NongHyup and Saemaul Geumgo, but could not overcome the differences in positions between each institution and the relevant ministries.

Mutual finance institutions are overseen by different ministries?NongHyup by the Ministry of Agriculture, Food and Rural Affairs; Saemaul Geumgo by the Ministry of the Interior and Safety; and Suhyup by the Ministry of Oceans and Fisheries?making consistent management and supervision by financial authorities difficult. The FSC is currently considering revising the FCPA supervisory regulations or issuing administrative guidance so that early repayment fee reductions can be applied uniformly to individual mutual finance cooperatives.