Credit card firms face weekly monitoring

Regulators mull business suspension, warning CEOs on violators


Credit card companies which will fail to meet new regulatory standards will face tougher sanctions such as business suspension, financial regulators said Tuesday.

In addition, regulators are expected to turn up the heat on card company CEOs as they are poised to issue a censure-level warning against rule-violators.

As credit card issuers have entered an excessive business expansion mode, the Financial Services Commission and the Financial Supervisory Service unveiled updated regulatory instructions including “weekly monitoring.”

“The business suspension against rule-violators refers to banning issuing credit cards for a certain period,” an FSS official said.

Under the instructions, companies will be obliged to set their own guidelines, curbing expansion, in three major business sectors ― company assets, issuance of cards, and costs for promotion activities.

The FSS, an investigative arm of the FSC, plans to monitor their guidelines “every week” and move to issue a warning against players engaged in irregularities shortly.

In particular, companies failing to meet the guidelines ― or surpass the growth limit at certain times ― will be subject to a special regulatory probe.

As an initial step, the FSS, which has been conducting inquiries into the overall credit card market since May 25, said it is considering appropriate sanctions on rule-violators. The probe will continue until June 24.

The FSC and the FSS are also set to introduce regulation on the leverage ratio, or total assets to equity capital, in the credit card industry.

“Under the coming leverage regulation, companies may be banned from issuing corporate bonds far beyond their equity capital,” an FSC official said.

According to the FSS, their combined assets, including insolvent loans, reached 75.6 trillion won at the end of 2010 ― after continuing to expand over the past few years ― approaching the critical level of 78.9 trillion won at the end of 2003.

The number of card salespeople also came to about 50,000 as of the end of 2010, up 30 percent from 35,000 a year earlier.

Card issuers have been fighting a marketing war since last year, vying for a bigger slice of consumer spending as it gets on track to recovery.

The competition led to sharp increases in card issuances and service loans, similar to the last industry crisis, in which the then-largest issuer LG Card and several others had to be rescued with creditors’ money.

The trend is more risky coming on top of the combined household debt which has reached a record high of more than 800 trillion won ($740 billion).

By Kim Yon-se (kys@heraldcorp.com)