Introduction of Debt Adjustment Request Right... Strengthening Protection for Delinquent Debtors

Resolution on the Bill for the Act on the Management of Personal Financial Claims and Protection of Personal Financial Debtors
Delinquent debtors may request debt adjustment from creditor financial companies if repayment is difficult
Limiting the imposition of delinquency interest to reduce delinquency burden
Prohibition of more than 7 collection contacts within 7 days

[Asia Economy Reporter Song Hwajeong] The government is introducing a debt adjustment request right that allows delinquent debtors to request debt adjustment from financial companies if repayment is difficult, in order to protect the rights and interests of debtors. Additionally, the accumulation of debt amounts during the delinquency period will be limited to reduce the burden of delinquency.

According to the Financial Services Commission on the 13th, the Cabinet meeting approved the bill for the "Management of Personal Financial Claims and Protection of Personal Financial Debtors Act," which focuses on strengthening the management after delinquency of personal financial claims and the protection of debtors.

This bill contains provisions to strengthen the protection of debtors' rights and interests throughout the series of processes after delinquency, such as debt adjustment, imposition of delinquency interest, and collection.

First, a debt adjustment request right for debtors will be newly established, and private debt adjustments between financial companies and debtors will be activated.

With the introduction of the debt adjustment request right, debtors who have delinquent debts can request debt adjustment from the creditor financial company if repayment is difficult. The creditor financial company receiving the debt adjustment request must stop collection and notify the debtor of whether the debt adjustment will be made within 10 business days. The creditor financial company may refuse debt adjustment if the debtor fails to respond to requests for supplementary documents submitted during the debt adjustment request more than three times, or if the debtor repeatedly requests after rejection of debt adjustment without changes in repayment ability.

Financial companies must notify debtors of the opportunity for debt adjustment before the loss of the benefit of the term, transfer of claims, or proceeding with housing auction, which have significant impacts on the debtor's rights. When the debtor requests debt adjustment, the transfer and collection of claims are restricted until the debt adjustment procedure is completed.

The accumulation of debt amounts during the delinquency period will be limited to reduce the burden of delinquency. Currently, when the benefit of the term is lost, delinquency interest is imposed even on the principal for which the repayment date has not yet arrived. This will be improved so that even if the benefit of the term is lost, delinquency interest on the principal debt for which the repayment date has not yet arrived is prohibited, and only the agreed interest can be imposed. In addition, future interest claims will be waived upon transfer of written-off claims. Currently, financial companies impose interest even on written-off claims that are considered uncollectible and treated as losses, but going forward, transfer of written-off loss-included claims will only be possible if the financial company has waived future interest claims.

Internal standards for managing the statute of limitations will be mandatory. Until now, the statute of limitations completion has been delayed because financial companies have extended the statute of limitations as a practice without considering the debtor's repayment possibility. According to the new bill, financial companies must notify the debtor of the completion of the statute of limitations within 10 business days from the completion date, and if the debtor does not explicitly express the intention to repay the debt within 10 business days from the notification date, the statute of limitations will be considered completed.

Unfair collection practices unfavorable to debtors, such as excessive collection, will also be improved. The new bill legally specifies claims that financial companies and collection agencies cannot collect or transfer, such as claims with completed statute of limitations, claims under litigation, and claims under debt adjustment.

Also, to provide sufficient predictability to debtors at the start of collection, information on the collection claims and the expected start date of collection must be notified to the debtor in advance. Collection methods will also be restricted. Under the collection volume system, collection contacts exceeding seven times in seven days are prohibited. Debtors can request restrictions on contact times or methods through the contact restriction right. Additionally, if unavoidable reasons such as disasters are confirmed, collection contacts will be deferred for a certain period.

The responsibility of creditor financial companies to protect debtors will also be strengthened. When creditor financial companies transfer claims or entrust collection, they must evaluate the expertise and complaint history of the assignees or trustees and transfer or entrust to companies with expertise and low risk of illegal or excessive collection. Also, creditor financial companies must supervise trustees to ensure they do not violate the Personal Debtor Protection Act and the Debt Collection Act when entrusting collection. Furthermore, personal debtors can claim statutory damages of up to 3 million KRW against creditor financial companies and collection companies. However, if creditor financial companies and collection companies prove no intent or negligence, they are exempt from liability.

A Financial Services Commission official said, "It is expected that a virtuous cycle structure will be formed that promotes the rights and interests of debtors and supports rapid recovery, while also enhancing the long-term recovery value of financial companies."

The Financial Services Commission plans to submit the debtor protection bill, which passed the Cabinet meeting today, to the National Assembly within this month. It will be enforced one year after promulgation upon approval by the National Assembly.

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