Several Guidelines to Prevent the Recurrence of the Credit Card Chaos in 2003
The FSC plans to adopt regulatory changes that will stabilize credit card industries and its customers. Recently, the credit card industry in South Korea seems to be overheating, which remains people of the worst chaos of cards in 2003. In 2003, domestic card companies neglected risk management while focusing on expanding their size. Also, there was tremendous competition to get credit cards in the hands of consumers by the issuers. Eventually, it resulted in creating millions of credit delinquents. Card issuers faced a liquidity crisis because of snowballing overdue card bills and had to be rescued by the government through public funds. Since then, people took huge lessons from this painful experience and have made their best efforts to become more sound and stronger by employing strict credit risk management strategies. However, the credit card market tends to heat competition again and there is a possibility that the nation will see the number of credit defaulters surge. Also, the credit card companies spend more capital on marketing and sales than their sound risk management. Therefore, the FSC suggests several rules to reform and stabilize the current market system. Here are some measures.
1) To induce the sound marketing competition
Make card companies provide reasonable optional services: When designing a new product or a card, card companies are required to analyze a profit structure carefully so that providing services does not lead to a poor risk and the loss.
Strengthen monitoring marketing competition condition: Through regular market monitoring, the FSC strengthens market monitoring and orders companies to correct unsound competitions immediately in order to prevent the critical risk before it occurs.
2) To strengthen the strict check for the illegal sales activity
Establish the sound sales activity: The FSC sets several rules for sales activity, which state clearly details of sales activity regulations. Also, it should be used to train salespersons and to control the internal system.
Check companies’ sales activity regularly: The monitoring will be four times a year assigning financial specialists, which was once a year before. Also the regulatory expands and improves the strength and the influence for the market.
Strengthen restrictions for illegal card sales activity: There will be a great amount of fine for providing unreasonable free gifts and sales on the street. Also, the FSC requires credit cards companies to be responsible for monitoring sound sales themselves.
3) To reinforce risk management for cards loan
Raise the level of maintenance cost: By raising the level of maintenance cost, it is expected for companies to have the ability to prevent the large loss.
Strengthen the risk management and prevent unhealthy card loan sales: Setting an example of card loan, sales and the risk management prohibits card companies from unsound sales activities.
Although the situation is not same as the worst chaos of cards in 2003, marketing cost is rising and sales activities was highly competitive, which raises the concern recently. Therefore, the FSC suggests several measures above in order to prevent the chaos in 2003 again. Moreover, they are willing to take strong steps for excessive competitions.