Financial companies will still bear customer protection responsibilities even after selling delinquent debts to collection agencies, aiming to prevent excessive recovery practices against those who have fallen behind on payments.
On the 26th, the Financial Services Commission of Korea announced revised measures to strengthen the management of personal delinquent debts during the second meeting of the 'Transformative Financial Inclusion' initiative. One major change is that financial companies will maintain their customer protection responsibilities even after selling delinquent debts to collection agencies. Previously, this responsibility diminished upon sale, resulting in inadequate protection for borrowers who faced aggressive recovery tactics from third-party collectors. Statistics indicate that around 300,000 new long-term delinquent borrowers emerge each year, raising concerns over the systemic issues within the debt recovery structure.
In response to these ongoing challenges, the Financial Services Commission has introduced regulations that will prevent excessive practices by debt collection agencies that acquire delinquent debts. The new rules will require original creditors to ensure that any collection service they sell their debts to is compliant with legal and ethical standards. Additionally, if any illegal activities are identified, the original creditor will be obligated to report them to the supervising authorities immediately. Such measures are aimed at bridging the gap in consumer protection once debts change hands, thereby safeguarding vulnerable borrowers who often become targets for predatory collection efforts.
The updated guidelines will also address how original creditors inform borrowers about debt restructuring options. The commission mandates that creditors provide information on restructuring options much earlier in the timeline of default, before the point at which borrowers face losing their repayment benefits. This shift aims to prevent short-term financial difficulties from morphing into long-term delinquencies, as borrowers currently often find themselves under pressure to repay the full principal and interest upfront after reaching critical points in their loan terms. The comprehensive approach seeks not only to provide immediate relief for overburdened borrowers but also to ultimately improve the integrity of the financial recovery system.
