"Crackdown on Non-Housing Secured Loan Tricks"... Proposed Amendments to the Credit Union Act and Banking Act

Assemblyman Song Jae-ho Proposes Two Bills Amending the Credit Union Act and Banking Act to Prevent LH Scandal in the National Assembly

[Asia Economy Reporter Park Sun-mi] A bill containing provisions to strengthen eligibility screening for non-residential real estate collateral loans to prevent the use of loophole loans in advance has been proposed in the National Assembly.

On the 13th, Song Jae-ho, a member of the Democratic Party of Korea and the National Assembly's Political Affairs Committee, announced that he had proposed amendments to the “Credit Cooperatives Act (hereinafter referred to as the Credit Cooperatives Act)” and the “Bank Act,” which strengthen the verification procedures for qualifications or career certificates required by related laws when obtaining loans based on collateral other than housing such as land, to the National Assembly. The joint proposal of the amendments to the Credit Cooperatives Act and the Bank Act included members Kim Young-bae, Nam In-soon, Kim Seung-nam, Hong Sung-guk, Choi Jong-yoon, Wi Seong-gon, Lee Sang-heon, Song Ki-heon, Shin Young-dae, Lee Won-wook, and Chun Jun-ho.

The Credit Cooperatives Act, which comprehensively covers regulations related to mutual finance, includes provisions that when non-members use non-residential collateral such as land or forest land other than housing for loans, they must submit documents proving the purpose of the business and related qualifications and career as stipulated in related laws such as the “Act on the Promotion and Support of Agricultural and Fishery Management Entities,” and also verify the validity of those documents as a principle.

Also, in the Bank Act, if there are standards prescribed by Presidential Decree regarding qualifications and career stipulated in related laws for non-residential real estate such as farmland or forest land, it includes provisions that proof documents must be submitted and their validity confirmed. This is intended to strengthen the prevention of the possibility of using loophole loans not only through mutual finance but also through banks in advance.

Under current regulations, banks are required to perform lending and deposit operations specified in the Bank Act and comply with management guidance standards such as matters concerning the adequacy of capital and asset soundness determined by the Financial Services Commission. Mutual finance is managed under the Financial Services Commission's “Mutual Finance Supervision Regulations” and is based on the Credit Cooperatives Act as the higher law. Mutual finance cooperatives perform loan operations for funds necessary for members as one of the credit businesses and are regulated to allow non-members to use the business within the scope that does not interfere with members' use.

However, as seen in the recent land speculation allegations involving employees of Korea Land and Housing Corporation (hereinafter LH), employees used mutual finance loans based on non-residential collateral such as land while being non-members, which became problematic. At that time, LH employees received loans with higher limits than housing collateral loans by submitting formal documents such as farming plans and using loophole methods like planting saplings. In fact, mutual finance served as a channel to secure funds necessary for speculation, highlighting a blind spot in loan screening.

Song, the representative proposer of the bill, emphasized, “Although loan regulations for non-residential collateral have been strengthened after the LH incident, it is difficult for banks or mutual finance to actually verify whether the qualifications required by related laws such as the Agricultural and Fishery Act are valid,” and added, “It is necessary to more strongly block loopholes for speculative loans by stipulating principles in the law so that the validity of qualifications and career is also checked.”

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