"Credit Card Companies and Loan Businesses Now Required to Verify Identity for Loans... Fines for Violations"

Expansion of Financial Firms Required to Verify Identity for Loans to Prevent Voice Phishing
Up to 10 Million Won Fine and Liability for Damages for Violations

The Financial Services Commission announced on November 4 that a partial amendment to the Enforcement Decree of the Act on the Refund of Damages from Telecommunication Fraud, which strengthens the responsibility of financial companies to prevent voice phishing, was approved at a Cabinet meeting.

This amendment is a follow-up measure to the "Plan to Strengthen Response to Voice Phishing," which was announced at the Livelihood Crime Inspection Meeting on March 6. It expands the scope of financial companies required to verify the identity of users applying for loans to include specialized credit finance companies (excluding new technology business finance companies) and loan businesses with assets of 50 billion won or more.

The Act on the Refund of Damages from Telecommunication Fraud stipulates account payment suspension and victim reimbursement to prevent voice phishing (telecommunication financial fraud) and ensure prompt refund of damages. Until now, it has mainly regulated banks, savings banks, and mutual finance institutions that are able to issue accounts.

However, there have been calls to require specialized credit finance companies (such as credit card companies and leasing or installment finance companies) and loan businesses, which mainly engage in lending operations even if they do not issue accounts, to make identity verification mandatory when providing loans. This is because voice phishing crime groups have been stealing personal information and impersonating individuals to fraudulently obtain card loans and non-face-to-face loans.

With this amendment, specialized credit finance companies and loan businesses with assets of 50 billion won or more must go through the identity verification procedures stipulated by the Act on the Refund of Damages from Telecommunication Fraud when carrying out lending operations. Verification methods include using the user's phone number (including mobile phones) registered with the financial company, face-to-face verification, or non-face-to-face real-name transaction verification methods under the Real Name Financial Transactions Act (such as submitting a copy of an identification document or conducting a video call). If specialized credit finance companies or loan businesses fail to fulfill these obligations, they may be subject to fines (up to 10 million won) and liable for damages to victims.

The amended Enforcement Decree, approved at the Cabinet meeting on this day, will come into effect six months after promulgation, following presidential approval and promulgation procedures.