The Financial Services Commission (FSC) is raising the bar for registering lending businesses to prevent illegal financial practices. The new regulations aim to stop the misuse of shared office spaces for registering lending companies and then transferring those licenses to illegal lenders. Additionally, the rules will address the issue of multiple lenders providing small loans to circumvent lending limits.
On July 1, the FSC announced that it will publicly announce a proposed amendment to the Lending Business Act from July 2 to August 10, a follow-up to measures introduced in December aimed at eradicating illegal finance.
The proposed amendment specifies the requirements for fixed business locations for lending companies. From now on, lending businesses must have a physical location that is accessible to the general public. Locations already used by other lending companies will be restricted from registration.
Recently, there have been cases where individuals rented inexpensive shared office spaces to register as lending companies, only to sell or transfer their licenses to illegal financial operators. These illegal lenders have been advertising themselves as registered lenders and soliciting customers while charging interest rates exceeding the legal maximum of 20% per year.
The amendment also aims to prevent the practice of multiple lenders providing small loans to a single borrower. Current regulations require lenders to verify a borrower's income, assets, and debt before signing a loan agreement. However, exceptions allow young and elderly borrowers to receive loans under 1 million won without documentation, and other borrowers for amounts under 3 million won.
Some lending companies have exploited this exception by splitting loans among several lenders to avoid income and debt verification. For instance, if a borrower seeks 10 million won, five lenders could each provide 2 million won without requiring documentation.
Under the new rules, the exemption threshold for documentation will now consider the existing loan balance along with the new loan amount, as well as any loans taken from other lenders within the past seven days. The FSC plans to provide detailed operational guidelines through a separate manual before the enactment of the law.
The process for blocking phone numbers used in illegal finance will also be expedited. Currently, local police must verify phone numbers used for illegal collections, lending, or advertisements and request their suspension through the Commissioner of the National Police Agency. The proposed amendment will allow local police chiefs to directly request the suspension of these numbers.
* This article has been translated by AI.
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