Financial Consumer Protection in the Household Lending Sector : An Assessment of the Korean Experience

Abstract

The objective of this paper is to offer a systematic review and assessment of the policy measures adopted to date for financial consumer protection (FCP) in the household lending sector in Korea. In so doing, we focus on the “software” aspects of the policies adopted so far in terms of four particular groups of consumer issues: (1) information provision (by service providers), (2) financial literacy programs, (3) sales practices, and (4) dispute resolution (rules and processes). We also attempt to relate the FCP policies to two broader goals of financial market regulations - financial stability and financial inclusion. Our analyses indicate that; the regulatory authorities in Korea initiated the FCP policies early on, which cover a fairly comprehensive set of policy measures with almost all sub-items of the aforementioned four dimensions being included; some of the FCP policies are driven in large part by the intent of stabilizing the housing and mortgage market rather than protecting financial consumers per se, for which the regulatory authorities should weigh the anticipated benefit in terms of financial stability against the unintended cost in financial inclusion; and the Korean FCP policies tend to focus on the residential mortgage lending sector, which should be extended to other consumer lending products (e.g., credit – or non-collateralized – lending, credit card receivables, and car loans). Though seemingly comprehensive, the FCP policies in Korea should be further refined and enhanced with respect to their effectiveness, for which we discuss a series of future research topics.