Financial Services Commission Takes a Step Back... Adjusts Reduction Scope of Loan Brokerage Fees

To Prevent Illegal Private Loans Exit, Fixed Rates Set at 3% for Under 5 Million Won, 2.25% for Over 5 Million Won

[Asia Economy Reporter Kwangho Lee] The upper limit for loan brokerage fees received by intermediaries recruiting customers for loan companies has been set at 3% for loans up to 5 million won and 2.25% for loans exceeding 5 million won. Initially, there was a plan to uniformly reduce the fee cap by 1 percentage point across all brackets, but financial authorities appear to have aimed to ease the burden on loan companies following the reduction of the statutory maximum interest rate (from 24% to 20%) to prevent a shift to illegal private loans.

According to financial authorities on the 22nd, the Financial Services Commission approved the amendment to the "Enforcement Decree of the Act on Registration of Loan Business and Protection of Financial Consumers (Loan Business Act Enforcement Decree)" containing these details at its regular meeting the previous day.

In April, the FSC announced a plan to reduce the loan brokerage fee cap by 1 percentage point each to improve reckless loan solicitation practices caused by high brokerage fees and to secure lending capacity for low-credit borrowers in high-interest sectors. Currently, loans up to 5 million won require a 4% fee, and loans exceeding 5 million won require 200,000 won plus 3% of the amount exceeding 5 million won. The plan was to lower these to 3% for loans up to 5 million won and 150,000 won plus 2% of the amount exceeding 5 million won, reducing the cap by 1 percentage point.

However, during the legislative notice period (May 21 to June 30), opinions were submitted both supporting the fee reduction and opposing or requesting adjustment due to the excessive reduction. After reviewing the feedback and the Regulatory Reform Committee's deliberation, the FSC decided to somewhat ease the reduction for the bracket exceeding 5 million won. According to the revised plan, the fee cap for loans up to 5 million won will be reduced by 1 percentage point to 3%, but for loans exceeding 5 million won, a fee of 150,000 won plus 2.25% of the amount exceeding 5 million won will apply.

An FSC official stated, "We accepted the opinion that it is reasonable to set the reduction rate at 25% compared to the existing cap regardless of the amount," adding, "This measure is expected to increase the number of low-credit borrowers who can access loans in high-interest sectors."

Loan companies are reportedly relieved by the FSC's decision. According to the top 10 loan companies, loans exceeding 5 million won account for 60% of total credit.

A representative from a loan company said, "Most loan approvals are divided between amounts under 3 million won and over 5 million won, with the latter being more frequent," adding, "There were many complaints from brokerage firms, but this will at least provide some relief."

Another representative expressed frustration, saying, "Although financial authorities decided to ease brokerage fees for high-value brackets, some loan companies are already complaining about deteriorating profitability, withdrawing from business, or raising loan standards," and added, "The political sphere is fueling calls for further reductions in the statutory maximum interest rate, which is frustrating."

Meanwhile, the FSC has formed a "Maximum Interest Rate Reduction Implementation Task Force" with the Financial Supervisory Service, the Korea Inclusive Finance Agency, the Credit Recovery Committee, and related financial associations to monitor market conditions amid concerns following the statutory maximum interest rate reduction. A task force official stated, "More than two weeks have passed since the statutory maximum interest rate was lowered, but no unusual trends such as the feared 'loan cliff for low-credit borrowers' have appeared."

This content was produced with the assistance of AI translation services.