Financial regulators will convert the debt collection business into a licensing system and significantly raise capital requirements to curb aggressive collection practices. They will also lower mid-range interest rates at savings banks and capital companies by providing incentives for loan-to-deposit ratios and lending limits.
The Financial Services Commission announced these measures as part of its "Inclusive Finance Transformation Initiative" at the Integrated Financial Support Center for Ordinary Citizens in Suwon, Gyeonggi Province, on Wednesday.
The FSC will substantially tighten requirements for the debt purchasing and collection business. The current registration system requiring 5 billion won in capital will be replaced with a licensing system requiring minimum capital of 30 billion won, at least 20 employees, and major shareholder eligibility screening. Companies will also be prohibited from operating both lending and debt collection businesses simultaneously.
The regulator will ease the burden on mid-to-low credit borrowers by lowering the upper limit for mid-range interest rates. Currently, loans are classified as mid-range when savings banks charge 16.5% or less annually and capital companies charge 15.5% or less. The FSC plans to lower these relatively high ceilings while offering preferential treatment in calculating loan-to-deposit ratios and lending limits.
By 2028, regulators will increase the supply of "New Hope Seed" loans for ordinary citizens to 6 trillion won. The five major financial groups—KB, Shinhan, Hana, Woori, and NH Nonghyup—have committed to providing approximately 70 trillion won in inclusive finance over five years, with the government conducting annual reviews. Groups that fall short of targets will face higher contribution rates to the Korea Inclusive Finance Agency as a penalty. FSC Chairman Lee Bok-hyun emphasized, "It is time to fundamentally address financial exclusion, the accumulation of long-term delinquent borrowers, and aggressive collection practices."
As of August last year, borrowers in the top 50% of credit scores (based on NICE Information Service) received average unsecured loans from savings banks at 5.65% annually. However, for mid-credit borrowers in the 21st to 50th percentile, this rate jumps by 9 percentage points to 14.65%. For low-credit borrowers in the bottom 20%, the rate reaches 15.65%—a 10 percentage point gap from high-credit borrowers.
The FSC's initiative focuses on addressing this interest rate disparity. The current annual mid-range loan rate ceilings—7.44% for banks, 9.56% for mutual finance, 12.33% for card companies, 15.5% for capital companies, and 16.51% for savings banks—will be lowered. An FSC official explained, "The mid-range loan rates at capital companies and savings banks, in particular, are perceived as too high by ordinary citizens."
The FSC will also significantly expand New Hope Seed loans. The previous target of supplying 6 trillion won by 2030 has been moved up to 2028. Last year's supply was estimated at 4 trillion won. The target for internet-only banks' share of loans to mid-to-low credit borrowers will also be raised to 35% by 2028, two years ahead of schedule. The target, which was 30% last year, will increase by 2 percentage points to 32% this year.
By 2028, the FSC plans to provide 6.79 trillion won in Sunshine Loans, illegal private lending prevention loans, and microfinance to 1.233 million people. This represents a 34% increase in beneficiaries and a 12% increase in supply compared to last year. Notably, microfinance products targeting young people and financially vulnerable groups, to be introduced this year for the first time, will offer loans at 3% to 6% interest rates.
The debt purchasing and collection business, which involves buying non-performing loans from financial institutions and collecting on them, will transition to a licensing system. Currently, companies can engage in collection simply by registering with the FSC if they have 5 billion won in capital. Going forward, the FSC will require the same standards as credit information companies: 30 billion won in capital, 20 employees, and major shareholder eligibility screening. Existing debt collection companies will have a three-year grace period to obtain licenses. With 834 debt collection companies currently operating, regulators acknowledge that monitoring for illegal collection practices has been virtually impossible.
The five major financial groups—KB Financial, Shinhan Financial, Hana Financial, Woori Financial, and NH Nonghyup—will provide a total of 70.15 trillion won in inclusive finance over five years through 2030 to support vulnerable groups and small business owners. KB Financial plans to provide 17 trillion won, followed by Hana Financial (16 trillion won), NH Nonghyup (15.4 trillion won), Shinhan Financial (14.95 trillion won), and Woori Financial (6.8 trillion won).
Each financial group will also introduce programs to help low-credit borrowers recover financially. KB Financial will enable vulnerable borrowers currently using licensed moneylenders to refinance through Kookmin Bank. An FSC official noted, "Bank refinancing programs have traditionally focused on second-tier financial institutions. KB Financial's expansion to include licensed moneylenders is significant."
Hana Financial has been operating a "Sunshine Loan Interest Cashback Program" since this month. The program converts 2% of the outstanding loan balance into monthly amounts and returns cash each month to borrowers who make regular payments on Sunshine Loans. This is seen as a win-win initiative aligned with the Korea Inclusive Finance Agency's policy of lowering guarantee fees for borrowers with good repayment records. Woori Financial introduced a 7% annual interest rate cap on personal unsecured loans this month.
The FSC plans to introduce a performance evaluation system in the first quarter of this year to monitor whether each financial holding company meets its inclusive finance targets. Financial companies with strong inclusive finance results will receive reduced contribution rates to the Korea Inclusive Finance Agency, while those with poor performance will face higher rates.