South Korea to Shift Debt Collection to Licensing System

South Korea's debt collection industry, specifically the business of purchasing and collecting overdue debts, will shift from a registration-based system to a licensing system after 17 years. This regulatory change, discussed at the "5th Inclusive Finance Transformation Meeting," aims to establish more rigorous entry and management standards for the sector.

The move comes in response to growing concerns about excessive debt collection practices by smaller firms operating under the current registration system. Debt collection businesses, which can legally seize assets like bank accounts and register individuals as defaulters after obtaining a court order, have faced numerous complaints regarding aggressive and prolonged collection efforts. Lim Hyung-joon, head of the Financial Services Commission's Household Finance Division, stated that the transition to a licensing system is crucial to prevent excessive collection activities and legal actions.

Under the proposed licensing requirements, companies must be majority-owned by financial institutions, possess a minimum capital of 3 billion won, and present a sound business plan. The qualifications of major shareholders, their financial status, social credibility, and professional expertise will also be scrutinized. Additionally, licensed firms will be required to employ at least 20 full-time staff, including five legal professionals, and meet enhanced IT security standards due to the sensitive nature of the data they handle.

Existing companies will be granted a three-year grace period to comply with the new regulations. During this period, those applying for a license will be exempt from the 50% financial institution ownership requirement. The Financial Services Commission intends to gather further industry feedback before finalizing legislative amendments by August, with the goal of passing them through the National Assembly by the end of the year.

As of the end of 2025, there were 911 registered debt collection businesses in South Korea, with 498 actively holding debts. The total value of purchased debt held by these companies was approximately 67.8 trillion won in principal and 22.4 trillion won at purchase price.