The Financial Services Commission reforms the early repayment fee system... significantly reducing the burden on consumers

 

 

 

The Financial Services Commission (FSC) announced on the 10th that it had approved the amendment to the 'Financial Consumer Protection Supervisory Regulations' aimed at improving the system for charging prepayment fees during a regular meeting.

The amendment focuses on adjusting the prepayment fees that financial companies charge borrowers for early repayment of loans before the agreed maturity, to reasonable standards to reduce consumer burden.

Prepayment fees are charged when a customer repays a loan early, and they are intended to cover the costs incurred by banks when there are disruptions in the operation of funds managed through deposits.

However, there have been criticisms that prepayment fees were uniformly imposed without reflecting actual costs.

To address this, the FSC has adjusted the prepayment fee to reflect only the actual costs incurred from handling loans.

In cases of early loan repayment, only actual costs such as loss costs due to disruption in fund operations and administrative/recruitment costs related to loans can be reflected.

Loss costs include interest losses during the period of searching for a new loan source and interest losses due to interest rate differences upon re-lending. Administrative/recruitment costs include stamp duties, appraisal fees, notary fees, and recruitment commission costs.

Moreover, imposing prepayment fees by adding other items beyond these costs is considered an unfair business practice under the Financial Consumer Protection Act and is prohibited.

Considering the time needed for the financial sector to revise its internal regulations and build the necessary systems, the amendment will take effect in mid-January next year, six months from now.

The FSC stated, "We plan to prepare related guidelines in cooperation with the financial sector to ensure the smooth implementation of the prepayment fee system improvement and to make the criteria for calculating prepayment fees and the status of their imposition and exemption publicly available."

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The Financial Services Commission reforms the early repayment fee system... significantly reducing the burden on consumers