KFTC Restricts High Interest Private Loan

Measures to prevent consumer loss will be promoted this year by letting private moneylenders lend money by the standard contract term. The contract term that is unfavorable to loanee will also be improved.

The Korea Fair Trade Commission (KFTC) announced on the 6th that it would drastically alter the stipulations of financial businesses launching `standard stipulations for private loan business` to lessen the loss to private loan users and correcting disadvantageous provisions for the consumer in the existing contract terms of the bank loan.

KFTC is examining measures to improve contract terms for usury and debenture collection which exacts significant costs from consumers.

Lim Seok-Kyu, head of the Consumer Protection Bureau of KFTC said, "The standard stipulation under current stipulation law recommends the association of the business concerned to propose it on their own. The private loan business, however, has no association ties, making it difficult to establish standard stipulations. He added, "We are examining measures to enforce standard stipulations among major companies and Japanese loan companies."

KFTC will amend the stipulation law, enabling consumer bodies or KFTC to establish the standard stipulation if there is no binding organizations for the business.

Related to the contract terms of the bank loan, KFTC will amend some provisions disadvantageous to the consumers. It will especially treat first the provisions that regulate charges for additional expense in order to implement security in the process of giving loans to consumers and to give the advantage to financial institutions collecting debentures.

Furthermore, KFTC will order the companies to reformulate provisions which are unilaterally advantageous to the companies rather than establish a standard stipulation, because the contract terms of main hire-purchase finance houses are not so different from each other.

Joong-Hyun Park sanjuck@donga.com