Card Companies Shift Focus to Internal Debt Management Amid New Regulations

Financial authorities have decided that even after selling delinquent debts, original creditor financial companies will retain management and oversight responsibilities, prompting a shift in debt management practices within the card industry. Companies are moving away from the previous method of selling off delinquent debts to external parties and are increasingly focusing on enhancing their internal debt adjustment and management capabilities.

On June 21, an investigation into six major card companies (Shinhan, Hyundai, KB Kookmin, Lotte, Woori, and Hana Card) revealed that most are now carefully considering debt sales in light of expanded management responsibilities following such transactions. Additionally, there is a growing trend to strengthen internal debt management capabilities, including the expansion of self-debt adjustment programs.

This shift is attributed to the anticipated revisions to the 'Debt Collection and Loan Debt Sale Guidelines' announced by financial authorities. Historically, card companies have sold debts that were more than six months overdue to loan sharks or debt collection agencies to reduce provisions and manage delinquency rates. Selling debts effectively transferred the responsibility for debt recovery and debtor management to the purchaser, alleviating the burden of collection management.

According to the Financial Supervisory Service, the profits from loan debt sales for eight domestic card companies rose steadily from 223 billion won in 2021 to 584.8 billion won in 2023, with projections of 632 billion won in 2024 and 729.1 billion won in 2025. This indicates that card companies have relied on debt sales as a primary means of managing non-performing loans.

However, going forward, financial companies will need to monitor the collection status and potential resale of debts even after they have been sold. This has led to analysis suggesting that card companies are placing greater emphasis on internal debt adjustment and management capabilities.

For instance, A Card Company, which has a significant volume of non-performing debt sales, is now more cautiously evaluating whether to sell delinquent debts, considering the potential for increased post-sale management responsibilities. Meanwhile, B Card Company, which has a relatively low delinquency rate, is strengthening its internal management system by identifying customers with weak repayment abilities for inclusion in debt adjustment programs.

C Card Company, which has actively participated in the government's debt cancellation policy, is expanding its self-debt adjustment program. A representative from C Card Company stated, "The proportion of delinquent debts transitioning to public debt adjustment has increased, leading us to reduce our collection staff by about ten compared to the end of last year," adding, "We are expanding guidance on our self-debt adjustment program in accordance with authorities' recommendations."

Industry insiders express concerns that with the implementation of the Personal Debtor Protection Act in 2024 and the tightening of regulations related to debt sales, the responsibilities and costs that financial companies must bear will increase. One industry official noted, "Card companies that have actively utilized debt sales will inevitably be affected. With the responsibility for monitoring and managing original debts now assigned even after sales, decisions regarding debt sales will become more cautious than before."