Excessive Late Fees and Debt Collection Prevented... Personal Debtor Protection Act Passes National Assembly

Scheduled to be implemented from October next year

On the 6th, at the Government Seoul Office in Jongno-gu, Seoul, Kim Joo-hyun, Chairman of the Financial Services Commission (right), and Lee Bok-hyun, Governor of the Financial Supervisory Service, are entering the meeting room at the CEO meeting of financial companies, the Financial Supervisory Service, and the insurance industry. The meeting was held privately. Photo by Jo Yong-jun jun21@

The 'Personal Debtor Protection Act' to prevent excessive overdue interest and collection burdens will be enforced starting October next year. On the 20th, the Financial Services Commission announced that the bill for the 'Act on the Management of Personal Financial Claims and Protection of Personal Financial Debtors' (hereinafter referred to as the Personal Debtor Protection Act) has passed the National Assembly plenary session.

The FSC stated, "With the Personal Debtor Protection Act enabling financial companies to conduct their own debt adjustments, the Korean-style public-private debt adjustment system involving 'financial companies - Credit Recovery Committee - courts' has been completed."

Until now, debt adjustments in the financial sector have relied solely on public institutions such as the Credit Recovery Committee and courts. Because of this, financial companies were unable to conduct their own debt adjustments. The newly enacted bill includes ▲ institutionalization of private debt adjustment ▲ alleviation of excessive interest burdens ▲ improvement of unfavorable collection practices.

Going forward, debtors with overdue amounts less than 30 million KRW will be able to directly request debt adjustment from financial companies to enable swift recovery. When a financial company receives a debt adjustment request, it must stop collection activities and notify the debtor of the decision regarding the debt adjustment within 10 business days.

The method of charging interest for debtors with overdue amounts less than 50 million KRW has improved. The bill stipulates that when a financial institution exercises the 'loss of benefit of term'?recalling loans before maturity due to increased credit risk of the debtor?no overdue interest may be charged on the principal amount whose repayment date has not yet arrived.

For example, if the loan principal is 1 million KRW, with 100,000 KRW principal due and 900,000 KRW principal not yet due, overdue interest will only be charged on the 100,000 KRW that was not repaid by the due date. Currently, overdue interest can be charged on the entire 1 million KRW principal regardless of the overdue amount.

Excessive collection practices will also disappear. The bill limits the number of collection attempts to a maximum of seven times within seven days and allows debtors to request restrictions on contact during specific times or by certain methods.

The financial authorities plan to activate a 'Personal Debtor Protection Act Subordinate Legislation Task Force (TF)' involving the Credit Recovery Committee, Korea Asset Management Corporation (KAMCO), and others to create subordinate regulations and best practice guidelines related to internal standards.

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