South Korea Revises Debt Sale Guidelines to Keep Creditors Accountable After Delinquent Debt Sales
South Korea’s Financial Services Commission is moving to revise its debt collection and sale guidelines to require financial institutions to retain customer-protection responsibilities after selling delinquent debt, a regulatory change aimed at limiting repeated debt resales and aggressive collection practices.
The FSC announced on June 17 that the revised Guidelines on Debt Collection and Sale of Loan Receivables are expected to be finalized in July and implemented immediately. The changes would require original creditor financial institutions to monitor debt buyers for illegal collection activity, report violations to financial authorities, and include resale-related debtor protection terms in sale agreements.
FSC Targets Repeated Debt Sales
Under the current framework, South Korean financial institutions remain subject to debt collection restrictions when they directly hold and collect delinquent receivables. Those obligations include limits on collection attempts and supervisory duties when collection work is outsourced.
The FSC said those responsibilities have been easier to avoid when delinquent debt is sold outright. Regulators said that practice has contributed to mechanical debt sales, repeated transfers and borrower exposure to more aggressive collection activity as receivables move through banks, savings banks, card companies, capital firms, and debt collection agencies.
Under the revised guidelines, original creditor financial institutions would be required to monitor illegal conduct by debt buyers after the sale. They also would be allowed to request information from buyers about transferred receivables, including collection activity and statute-of-limitations management.
Sale Agreements Must Address Resale Terms
The revised guidelines would require financial institutions to include detailed resale provisions in debt sale agreements.
Those provisions must specify whether the debt can be resold, the extent to which resale is allowed, debtor protection conditions that apply after resale, and the standards used to evaluate debt collection agencies involved in later transfers.
The FSC said future sales to a buyer may be restricted if the buyer violates those contractual terms.
Broader Debt Collection Reform Continues
The guideline revision is part of a wider South Korean effort to reform the treatment of delinquent borrowers and the purchased receivables collection market.
The Personal Credit Management and Debtor Protection Act, which took effect in October 2024, expanded debtor protections by encouraging direct debt workout discussions between financial companies and borrowers, easing certain overdue interest burdens, strengthening debt sale rules and restricting excessive collection practices.
Regulators have since continued to focus on debt collection practices involving vulnerable consumers. Earlier this month, the Financial Supervisory Service launched a three-month inspection of loan companies and online loan brokerage platforms, with a focus on illegal debt collection, “zombie debt” collection, pressure directed at family members or acquaintances, and violations of maximum interest rate rules.
South Korean regulators also recently proposed moving the purchased receivables collection business from a registration system to a licensing system, with higher capital and staffing requirements. That proposal is expected to substantially reduce the number of firms eligible to purchase and collect delinquent receivables.
