South Korea Proposes New Debt Collection Restrictions for Vulnerable Consumers
South Korean financial regulators are moving to standardize when financial firms must restrict debt collection against certain financially vulnerable consumers, addressing differences in how existing debtor protections have been applied across institutions.
The Financial Supervisory Service has drafted amendments to supervisory regulations under South Korea’s Personal Debtor Protection Act that would establish procedures for identifying and protecting delinquent borrowers who receive basic livelihood security benefits, according to South Korean financial industry reports. The proposal has reportedly been submitted to the Financial Services Commission for further consideration.
The development follows a July statement from the FSC acknowledging that financial firms have applied different standards when determining whether collection should stop for basic livelihood recipients. The commission said it intended to clarify the scope and criteria for protected borrowers through supervisory regulations.
Proposed Rules Would Establish Collection Procedures
Under the reported proposal, financial firms would follow a standardized process for determining when collection restrictions apply.
Once a delinquent borrower is confirmed as a basic livelihood security recipient, the financial institution would restrict collection activity. The firm would later be required to reverify the borrower’s eligibility after a designated period.
The proposal would also address situations in which financial firms do not know that a delinquent consumer qualifies for protection. Pre-collection notices would include information explaining how basic livelihood recipients can have their status verified by the financial institution.
The approach could help prevent collection activity from continuing simply because a consumer is unaware of the protection or has not previously established their eligibility with the financial institution.
The specific timetable for adopting the amendments has not yet been announced, according to the reports. The FSS has submitted its proposal to the FSC, which would be involved in moving forward with changes to the supervisory regulations.
Existing Law Has Produced Different Collection Standards
South Korea’s Personal Debtor Protection Act, which took effect in October 2024, already provides a legal basis for stopping collection when necessary for public assistance purposes or the livelihood stability of individual debtors.
The FSC said in July that additional details were delegated to subordinate rules and that authorities had used guidelines and administrative guidance to restrict collection against groups including basic livelihood recipients and people with severe disabilities.
The problem has been consistency.
The FSC acknowledged that questions had arisen over whether collection against basic livelihood recipients was being stopped consistently among financial institutions. In response, the commission said it would clearly define the criteria and scope of debtors subject to collection restrictions in supervisory regulations and strengthen monitoring of implementation.
The newly reported FSS proposal appears to represent the next step in that process.
South Korea Continues Broader Changes to Delinquent Debt Management
The proposed protections are part of a wider effort by South Korean regulators to change how financial institutions handle delinquent consumer debt.
In June, the FSC proposed changes to its debt collection and loan receivables sale guidelines that would maintain certain debtor-protection responsibilities for originating financial institutions after delinquent accounts are sold. Among other provisions, originating institutions would be responsible for monitoring and reporting unlawful conduct by purchasers.
The FSC separately approved amendments in July restricting the transfer of certain accounts involving borrowers participating in expedited debt adjustment through the Credit Counseling and Recovery Service. Regulators said selling those accounts could expose borrowers who were making payments under adjustment arrangements to increased collection pressure or credit-score consequences.
South Korea has also targeted prolonged collection on charged-off accounts. In June, the FSC announced changes designed to prevent financial institutions from repeatedly extending limitation periods on certain charged-off unsecured consumer debts while receiving tax treatment for the losses.
