In an effort to further cool down an overheating credit card market, South Korea’s financial regulator has announced new limits for card companies’ operations.
The Financial Supervisory Service, after consultation and collaboration with the Financial Services Commission, announced on July 7 new regulatory measures that lay out exactly how much would card companies be required to scale back on lending and marketing new cards.
The regulator had announced in June that it would issue such regulations to combat growing household debt in Korea, tied to credit card lending that increased by more than 19% this year from a year ago (
According to the July 7 statement, the regulator will restrict the rate of increase of credit card companies’ lending capital to less than 5% during the second half of this year.
In addition, credit card line-increases will also be limited to 5%; new-card issuance will be limited to 3%; and the ratio of marketing costs to profits will be limited to 12%.
The regulator said it would closely monitor these card issuers’ operations and investigations will be launched into companies that do not comply with these new regulations.
The Korean regulators are introducing these new measures in order to avoid a repeat of the country’s 2002-03 card crisis, when a string of policy and regulatory changes created an environment where cards were issued without much diligence.
The lack of oversight resulted in a market where every cardholder owned almost four cards, and the national card debt amounted to about US$100 billion. Eventually, the Korean government had to bail out the card firms with a cash infusion.
