Foreign Credit Card Companies Consider Restriction of Overseas Use

Foreign credit companies including Visa and MasterCard unofficially informed Korean financial authorities that, “If LG Card becomes bankrupt, we may overall restrict overseas use of partnership cards issued in Korea.”

Domestic credit card companies do not have an overbroad independent affiliated firm, and without the support of foreign partnerships, they are virtually impossible to use.

A superior official of the Financial Supervisory Service (FSS) said yesterday, “At the end of last year, foreign companies such as Visa and MasterCard expressed their concern, and if LG Card becomes bankrupt, they may cut off overseas uses of the domestic cards in the partnership.”

This official added, “There may be other credit card companies besides LG Card included in the targets considered for restriction.”

An authority from the Ministry of Finance and Economy also said, “FSS has been notified of this action.”

The reason why restriction of overseas uses is being examined is that if the domestic card company goes bankrupt, the firms in the partnership will have the burden of all the money.

FSS forecasts that if LG Card falls into bankruptcy, other card companies will be pressured in the management and so there are possibilities that the restriction of overseas uses will be expanded.

Relating to this matter, a MasterCard official said, “If LG Card becomes bankrupt, the credit cards issued from LG Card may be restricted when used overseas, but cards from other companies can still be used as normal.” Visa replied, “The restriction of overseas uses is not the official position of our main firm.”

Meanwhile, the LG Card joint management plan headed by the Industrial Bank will come to a final conclusion on January 7 when LG Card’s financial difficulty becomes actualized.

Kookmin Bank, which has opposed to the joint management of creditors, held a management conference on this matter on January 5 but did not come to a conclusion.

A superior official of Kookmin Bank emphasized, “Industrial Bank, which is planning consignment management, should increase their share of LG Card and show a responsible position. Otherwise, LG Card will become a company without an owner, and normalization cannot be assured.”

On the other hand, Lee Jung-jae, governor of FSS, said at the meeting with news reporters, “Financial firms sympathize with the adverse effect the LG Card liquidation will bring to the entire financial system. We hope for a conclusion on January 6.” The general observation in the finance market is that in order for Industrial Bank to participate in joint management, it has to increase its shares of LG Card to 33 percent or more.

LG Card had faced a breakdown of its cash service on January 5, but passed the critical emergency by postponing the settling of its asset-backed securities (ABS) worth about 300 billion won.