Deputy head of the Financial Services Commission Kim So-young speaks during a meeting in Mapo District, Seoul, in this photo provided by the Financial Services Commission, Oct. 8. Yonhap

The vice chief of the financial regulator called on financial firms Tuesday to help reduce the burden of borrowers falling behind their payment schedules.

Kim So-young, deputy head of the Financial Services Commission (FSC), stressed that allowing people to repay their loans over an extended period of time, instead of letting them go defunct, would benefit both lenders and borrowers.

The call came as the new law on the protection of personal loan users is set to go into effect next Thursday.

Kim explained the law has four major objectives; encouraging financial firms and their borrowers to settle delinquent debt issues through direct consultation, reducing additional interests on delayed payments, limiting excessive debt collection efforts and enhancing regulations related to debt sales.

"This is expected to help not only allow (delinquent) debtors to make an economic comeback while enhancing the value (amount) of debts collected by lenders, but also reduce social costs of delinquent loans," the FSC official said in a meeting to check preparations for the implementation of the new law.

Kim noted the number of people requesting the court or the government to help reschedule their debt repayment schedule sharply jumped from around 269,000 in 2022 to over 347,000 last year.

Under the new law, people who owe less than 30 million won ($22,266) will be allowed to file such requests directly with their lenders, while the number of debt collection attempts by financial firms will be limited to seven over seven days.

"For such a system to be implemented in an effective way, a change in understanding of financial institutions and their active efforts are needed," Kim told the meeting, adding the FSC will also launch a new inspection team to closely monitor the actual implementation of related regulations in the market. (Yonhap)