Shared offices, housing units barred as registered addresses for lending firms

Lending companies will no longer be allowed to register shared offices or housing units — places where actual business operations are not feasible — as their official business addresses, under a proposed regulatory change. The measure is expected to block shell lending firms from entering the market.

The Financial Services Commission announced Tuesday that it will begin a public comment period Wednesday on a proposed revision to the enforcement decree of the Act on Registration of Lending Businesses and Protection of Financial Users, commonly known as the Lending Business Act. The comment period runs through Aug. 10.

The revision incorporates measures the FSC announced last December to strengthen oversight of registered lending businesses and credit information management. At the time, the government pledged through its "illegal private lending eradication plan" to support victims at every stage — from reporting harm and halting illegal debt collection to blocking phone numbers and ghost bank accounts, providing free debt-negotiation representatives, supporting police investigations and pursuing lawsuits to recover ill-gotten gains.

The revision first spells out the requirements for a fixed place of business for lending companies. In recent cases, operators have been registering lending businesses cheaply through shared offices and then transferring or selling those registrations to illegal private lenders.

In response, the revision limits eligible fixed business locations to places that members of the public can freely visit and access. Locations already registered as a fixed place of business by another lending firm will also be excluded.

The revision also tightens the criteria used to calculate the threshold amount for exemptions to the ban on excessive lending. Current law requires lending companies to collect documentation of a borrower's income, assets and liabilities before signing a loan agreement, to prevent borrowers from taking on excessive debt.

The documentation requirement is waived for small loans, but some lending firms have been exploiting this provision for irregular business practices. One example: when a customer seeks to borrow 10 million won ($6,460), five separate lending companies each provide 2 million won to stay under the threshold.

To close this loophole, the revision requires that when calculating the loan amount subject to the documentation exemption, lenders must add together the outstanding loan balance, the amount of the new loan being arranged, and the total amount the borrower received from other lending companies in the seven days preceding the new loan agreement. Detailed operational procedures will be provided through a separate business manual before the revised rules take effect.

In addition, the revision establishes a legal basis for local police stations handling illegal private lending investigations to request that the Ministry of Science and ICT suspend phone numbers used for illegal debt collection, unlicensed lending and illegal lending advertisements.

After the public comment period closes, the revision will proceed through review by the Ministry of Government Legislation, deliberation at a vice ministerial meeting and approval at a Cabinet meeting before taking effect.