South Korea plans to govern credit card issuance more strictly by enforcing a new set of applicant requirements, the country’s two top financial watchdogs–the Financial Services Commission and the Financial Supervisory Service–announced Dec. 26.
Under the government's final plan, which takes effect in June, banks may issue credit cards only to consumers ages 20 or older who have more income than debt and whose credit rating falls between grades 1 and 6.
The National Information & Credit Evaluation Group sets the credit ratings for consumers in Korea using a scale of 10 to 1 based on their income, debt, repayment history on cards and other loans, and past application history. A 1 rating denotes the highest creditworthiness, 10 the lowest.
Previously, banks could issue credit cards to anyone 18 or older, and their income-to-debt ratio and credit rating were not a binding factor.
Korea has 6.8 million consumers who fall above a 6 credit rating, of which only 2 million own credit cards. While the other 4.8 million would not receive cards unless their ratings improve, the plan was silent on whether issuers must not renew the 2 million cards already issued to low-rated cardholders once they expire.
However, the plan contains some card-issuance exemptions for consumers who must acquire welfare cards such as teens without guardians and for housewives who stay at home while their husbands work.
Under the plan, the two watchdogs also will set up a 24-hour settlement system that could boost debit card acceptance because merchants would now be able to reconcile transactions faster to receive funds in their accounts.
The plan also calls for new card-acceptance infrastructure, which would allow consumers to use their debit cards at vendors that now only accept credit cards. In addition, the government would request card companies to issue cards that support both credit and debit-based payments.
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