Financial Services Commission Eases Leasing and Installment Regulations... Capital Firms Welcome "Boost for Non-Interest Revenue"

Legal Foundation Established for Intermediation and Brokerage of Leasing and Installment Products

Credit-Specialized Financial Firms to Boost Commission Revenue... Consumer Confusion Expected to Be Minimized

The government has established a legal basis for credit-specialized financial companies (such as card companies and capital firms) to engage in intermediary and brokerage work for leasing (facility rental) and installment products, and the industry is welcoming this move. This is because it is expected to create more opportunities to increase commission revenue in the course of conducting leasing businesses for automobiles, industrial machinery, and educational or scientific equipment, as well as rental businesses for cars, home appliances, and more.

"Brokerage of Leasing and Installment Products Can Now Be Actively Pursued Like Lending Business"

Yonhap News Agency

According to the industry on May 7, the Financial Services Commission passed a revision to the Enforcement Decree of the Specialized Credit Finance Business Act during the Cabinet meeting on April 28, adding "intermediation and brokerage of facility rental and installment products" to the scope of concurrent work permitted for credit-specialized financial companies. It is known that the Korea Financial Industry Association, having collected the difficulties faced by these companies, played a leading role in persuading financial authorities and driving the legal revision during this regulatory easing process.

In the absence of clear regulations on the brokerage of leasing and installment products, capital firms and other credit-specialized financial companies had previously focused their business activities mainly on their own products, facing difficulties in brokering products from other companies or other sectors. However, with this revision, as intermediary and brokerage work is now officially permitted, it is being evaluated as a turning point that will allow for a full-scale expansion of the leasing and installment business.

Legal Uncertainty Resolved... Momentum for Revitalizing the Leasing and Installment Market

The industry expects that, now that the government has legally permitted cross-sector product distribution, credit-specialized financial companies will be able to diversify their sources of income. This is expected to serve as a driving force for revitalizing the leasing market, which has remained stagnant over the past five years, and the installment market, which has shown only minimal growth.

According to the Korea Financial Industry Association, the volume of leasing executed by the industry increased by only 0.6% (KRW 97.4 billion), from KRW 17.4665 trillion in 2021 to KRW 17.5639 trillion as of December last year. Over the past five years, the market has remained in a stagnant range of KRW 16 trillion to KRW 18 trillion. Although installment finance increased by 23.5% over the same period (from KRW 21.7831 trillion to KRW 26.9014 trillion), more than 90% of this was accounted for by automobiles, while the share of other products such as home appliances remained extremely low, highlighting the limits in portfolio diversification.

Although leasing and installment finance are financial transactions similar to loans, they have long been subject to institutional shortcomings due to the lack of clear legal standards. As a result, there have been frequent criticisms that companies were unable to broker products from other firms for customers even when those products offered better conditions, placing many restrictions on active sales activities.

Capital Firms to Create Non-Interest Revenue... Enhanced Consumer Protection

In particular, the capital industry is responding very positively to this measure. This is because they will now be able to generate non-interest (commission) revenue by connecting customers who were rejected in their own internal screening process to other companies. Conversely, it is also expected that customers rejected by other companies could be brought in as new customers if they meet the firm's own screening criteria, creating a virtuous cycle.

An official from the capital industry said, "Especially for capital firms among credit-specialized financial companies, not only will their role as sales agents expand, but their sales channels themselves will also increase, creating new growth opportunities. This will have a positive impact not just on the imported car market, but across all financial product sales activities."

Positive effects are also expected from the perspective of financial consumer protection. Consumers will have more product choices, while unnecessary confusion in the purchasing process will be reduced. Another industry official commented, "With this amendment to the enforcement decree, the roles between product providers and intermediaries will be clearly distinguished, minimizing consumer confusion and increasing the transparency of transactions."

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