Loan Association Receiving Institutional Warning and Management Caution Sanctions... Controversy Over President Election

Management Sanctions on Liability Compensation Mutual Aid System
Inspection Results Including 'Refusal to Submit Data' Institutional Warning
Chairman Im Seung-bo Receives Reprimand Warning
Next Chairman Nominee Denied Employment Approval

The Korea Credit Finance Association, representing private lenders, has been confirmed to have received a formal warning and management caution sanctions from the Financial Supervisory Service (FSS). Following the severe disciplinary action against the current chairman, Im Seung-bo, noise has also arisen during the election process of the next chairman, as the candidate failed to pass the employment review by the Government Ethics Committee for Public Officials. Some member companies have even filed complaints against the association.

On the 23rd of last month, the financial authorities issued three sanctions to the Credit Finance Association, including a formal warning and management caution. The reason for the formal warning was that during an on-site inspection in September 2022, the association obstructed the inspection by refusing to submit documents such as corporate card usage details and board meeting minutes. The management caution sanctions were specifically related to the indemnity liability compensation system, supervision of the entrusted company for loan brokerage business education, and the operation and management of IT systems.

The indemnity liability compensation system of the Credit Finance Association requires private lenders to be liable for damages caused to counterparties due to illegal acts, for which they deposit a security deposit with the association. Companies that have filed for closure or had their registration canceled can receive a refund of the compensation fee. However, the FSS judged that the association has been operating the system unfairly by not refunding the compensation fees to 387 companies eligible for refunds and instead treating them as profits. The total compensation fees that should be refunded amount to 80 million KRW. Additionally, when joining the compensation system, the association is required to provide terms and explain important details, but it was pointed out that the association’s website was set up so that new applicants could join without confirming the important terms in the contract.

Other issues include the formalistic supervision of the company entrusted with educating loan brokers, where only checklists sent by the company were reviewed, and the failure to receive security management result reports for the IT system from the entrusted company.

Previously, the Financial Services Commission issued a reprimand warning to Chairman Im for the same reasons as the formal warning received by the Credit Finance Association. According to the FSC, the association and Chairman Im repeatedly violated reporting obligations despite changing regulations related to their work.

Im Seung-bo, President of the Korea Asset-based Finance Association

The Credit Finance Association is currently facing concerns over a vacancy in the chairman position. Following Chairman Im’s departure after three consecutive terms this year, former FSS Director Kim Tae-kyung was nominated as his successor. However, on the 23rd of last month, the Government Ethics Committee for Public Officials notified the association of disapproval. Retired FSS officials at grade 4 (senior) or above are prohibited from reemployment in financial companies for three years after retirement. However, if the duties handled in the five years prior to retirement are unrelated to the prospective employer’s work, reemployment is allowed. The association judged that Kim’s previous duties were unrelated to the association’s work, but the Ethics Committee determined there was a connection. Consequently, the association will reopen the chairman candidate recruitment until the 6th. It is also reported that some member companies continue to oppose this. The “Credit Finance Association Normalization Promotion Committee” has filed complaints with the FSS and the Anti-Corruption and Civil Rights Commission, demanding transparency in the chairman appointment process and additional inspections of Chairman Im.

A representative of the Korea Credit Finance Association stated regarding this inspection, “There was confusion as this was the first inspection since the association’s establishment.” Regarding the next chairman election, they said, “We have nothing to say.”

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