Bringing Illegal Private Lending into the Formal Sector: Focusing on the Consumer Finance Industry

The government announced the “Comprehensive Measures for Protecting Users of Financial Services for Ordinary People” in 2011 and has continued efforts to eradicate illegal private lending, including the establishment of a reporting center for 피해 related to illegal private finance.

-> However, there appears to be market demand from people who knowingly use illegal private lending, and there also seem to be cases in which people have an urgent need for funds but face limited access to institutional financial services.

With the enforcement of the Money Lending Business Act (Act on Registration of Money Lending Business and Protection of Finance Users, etc.) in 2002, efforts were made to serve low-income consumers with an urgent need for financial services, but paradoxically negative perceptions of the money lending business also spread.

-> The money lending finance industry should be included in the secondary financial sector, as it is subject to legal regulations such as mandatory registration, but even registered money lenders are regarded in the financial market as belonging to a tertiary financial sector alongside unregistered money lenders, that is, illegal private lending.

Consumers who use the money lending finance market are generally known to be those who have difficulty obtaining funds from other institutional financial institutions.

-> Among consumers who use the money lending finance market, the largest share of borrowing is for living expenses (recently around 50%).

-> Based on the amount of new loans received, at least 52% of consumers each year are salaried employees.

-> In the 2010s, the money lending finance market underwent structural changes, including a sharp decline in individual money lenders and a slight increase in corporate money lenders, and the overall number of money lending firms decreased.

This study proposes the need for horizontal, bottom-up, and top-down innovation measures for the money lending finance market in order to protect financial consumers in the lending market and encompass diverse combinations of financial services in the financial industry.

-> In order to identify policy alternatives for consumer protection, the study conducted a survey of the general public who have used or are familiar with the money lending finance market, in addition to reviewing existing studies and policy literature.

A key policy implication is that the Money Lending Business Act has been designed in a more regulation-centered manner than other financial industry laws, making greater attention to improving the market structure necessary.

-> Since negative views of the money lending finance industry are widespread, the industry itself needs innovation to break away from such perceptions.

-> In the institutional financial market, regulatory evasion by money lending finance businesses through illegal private lending may occur; preventing this and expanding incentives for regulatory compliance in the related industry are necessary.

-> In a survey of the general public on the money lending finance industry, a new name, for example “livelihood finance,” was proposed, and a change in this direction is being considered.

It is necessary to identify outstanding money lending firms capable of making a pivotal contribution to financially underserved groups and to provide them with policy support and attention.

-> Support should be provided so that, centered on the Money Lenders Association, voluntary innovation measures can be explored through autonomous operation and management.

-> However, in the case of illegal private lending, strict legal regulations must be applied, while continuous enforcement against illegal private lending and protection against potential consumer harm are also necessary.

-> To this end, public guidance such as alerts on illegal private lending should be expanded, and stronger social and policy attention should be called for with respect to financial consumer protection in the money lending finance market.

I. Introduction

1. The Current State of Use of Illegal Private Lending and Cases of Harm

2. Definition and Brief History of the Money Lending Business

II. Consumers and Suppliers in the Money Lending Finance Market

1. Consumers in the Money Lending Finance Market: Focusing on User Characteristics

2. Suppliers in the Money Lending Finance Market: Focusing on Types of Money Lending Firms

III. Exploring Measures for Innovation in the Money Lending Finance Market and Survey Research

1. Directions for Innovation in the Money Lending Finance Market

2. Methods for Exploring Directions for Innovation in the Money Lending Finance Market and Survey Design

3. Main Results of the General Public Survey

IV. Policy Implications for Reducing Illegal Private Lending

1. Horizontal Innovation Measures

2. Bottom-Up Innovation Measures

3. Top-Down Innovation Measures

References

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Original title: 불법 사금융의 제도권 유입방안: 대부금융업을 중심으로

Author: Seung-dong Yoo

Date: 2025-01-15

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=report&pn=2&idx=27264