South Korea's Financial Services Commission announced on the 15th the pursuit of an amendment to the Special Act on Promotion of Litigation that would abolish special provisions allowing financial institutions to extend the statute of limitations on debts through public notification of payment orders without debtor knowledge. The move addresses criticism that banks, specialized credit finance companies, and securitization companies have been exploiting the system to repeatedly file payment orders on long-term delinquent debts with low repayment probability, extending limitation periods while debtors remain unaware and face prolonged collection pressure. The special provisions were introduced through a 2014 amendment to allow exceptional public notification for certain financial institutions, despite payment order procedures normally prohibiting such notification due to their simplified nature that allows creditors to secure enforcement rights without court appearance.
Financial Institutions Exploited 2014 Special Provisions for Repeated Limitation Extensions
Payment order procedures are simplified processes that allow creditors to secure enforcement rights without appearing in court. Public notification is normally not permitted in such procedures due to their characteristics, but the 2014 amendment to the Special Act created exceptions for banks, specialized credit finance companies, and securitization companies. Financial institutions have been utilizing this system to repeatedly apply for payment orders even on long-term delinquent debts with low repayment prospects, resulting in statute of limitations extensions occurring without debtor awareness and prolonged collection burdens continuing over extended periods.
FSC to Implement Amended Loss Recognition Rules in September
Under the new system, financial institutions will no longer be able to file payment orders for statute of limitations extension purposes using the public notification special provisions. The principle for managing long-term delinquent debts will shift to "statute completion in principle, limitation extension as exception." The FSC plans to amend the Financial Institution Credit Loss Recognition Business Rules and implement the changes in September to reform the practice of financial institutions repeatedly extending limitation periods even on written-off debts recognized as losses under tax law. Once the amendment takes effect, financial institutions will only be able to receive loss recognition and tax benefits on the condition that they allow the statute of limitations to expire at the first due date for individual financial claims. This approach aims to prevent repetitive and mechanical limitation extension practices and encourage active resolution of long-term delinquent debts that are difficult to recover.
FSC Chairman Lee Eok-won Expects End to Mechanical Limitation Extension Practice
FSC Chairman Lee Eok-won stated, "Through this system improvement, we expect the flawed practice of mechanically filing payment orders for statute of limitations extension purposes and conducting long-term collection even against debtors with minimal repayment capacity will be reformed."
FAQ
What did South Korea's Financial Services Commission announce on the 15th regarding debt collection?
The FSC announced the pursuit of an amendment to abolish special provisions that allowed financial institutions to extend the statute of limitations on debts through public notification of payment orders without debtor knowledge, addressing criticism of the practice that has enabled prolonged collection pressure on long-term delinquent debts.
When will the new Financial Institution Credit Loss Recognition rules take effect?
The FSC plans to implement the amended Financial Institution Credit Loss Recognition Business Rules in September, requiring financial institutions to allow statute of limitations to expire at the first due date for individual financial claims as a condition for receiving loss recognition and tax benefits.
