New rules include imposition of age, income limit on customers
Korea’s financial regulators said on Monday they would toughen qualifications for credit card issuance as part of efforts to stem excessive spending through plastic.
The Financial Services Commission unveiled plans for the new credit card issuance guidelines and other measures aimed at reining in fast-rising credit card spending and ballooning household debt at a time when the country’s economy braces for an extended slowdown due to greater external uncertainties.
“As credit cards are recklessly issued and consumers fail to use their cards properly, the country struggles with side effects such as greater burden on household debt and higher commission for retailers,” said the FSC in a statement.
The new set of plans will be introduced as soon as possible through the revision of laws and regulations, the FSC said, without elaborating on a specific implementation timeline.
Korea suffered a serious credit card setback in 2003 when the sector’s bubble burst and put the entire economy in jeopardy.
The specter is raising its ugly head again in recent months as data showed credit card spending is on the rise this year, suggesting a bubble forming at a steady pace. Currently, Koreans own, on average, 4.9 credit cards, but the number of new cards is reportedly going up sharply.
The latest clashes between credit card firms, small restaurants and regulators over the mandatory commissions paid for card purchases also highlighted the depth of the problem that, if unchecked, could spiral out of control.
To prevent credit firms from issuing cards to clients with poor credit records, the FSC said an applicant should be aged over 20 and have disposable income and meet a certain credit standard. The new requirement marks a significant upgrade since the current age limit is set at 18.
To minimize unused credit cards, a card that is not used for one year will be automatically discontinued.
As for the commission for credit card purchases, the regulator said it will introduce a major overhaul early next year in favor of client-based payment rates, which differ from the current industry-specific rates.
The FSC also revealed its focus on the promotion of debt cards, which are known as “check cards” in Korea. On top of the existing tax refund rates, more benefits will be given to debt card users. Taking note of the clear-cut spending limit of debit cards, regulators aim to make this type of cards mainstream in order to discourage excessive spending and loose loan extensions.
By Yang Sung-jin (firstname.lastname@example.org