P2P lending firms plan to police themselvesKorea’s online peer-to-peer lending firms have decided to police themselves as legislation intended to regulate the industry has been caught up in the National Assembly for nearly a year.
“We hope that P2P lending firms will soon be regulated by the government, though legislation is happening slower than we would like,” said Lee Hyo-jin, CEO of 8percent, during a panel on P2P lending companies’ influence on society at the Korea Internet Corporations Association in Gangnam District, southern Seoul, on Wednesday.
P2P companies, which operate online platforms connecting investors and borrowers, are currently not under the direct supervision of financial authorities in Korea.
“We are now waiting for five different bills regarding the regulation of the P2P industry submitted by National Assembly members in November 2017 to be passed,” Lee said.
A series of scandals have tarnished Korea’s numerous P2P companies in recent months, with the CEO of Roof Funding being arrested on accusations of fraud and misappropriation of funds in the latest incident last week. Roof Funding is the third largest player in Korea’s P2P industry.
In light of the legal vacuum, Lendit and 8percent, which are preparing to co-launch the Digital Finance Association with one more firm later this month, proposed progressive self-regulatory measures that all of the new association’s members will have to follow. Among others, all members would be required to manage investor funds and borrowers’ interest payments in separate accounts to safeguard them in case of bankruptcy or other unforeseen events.
“Because P2P businesses deal with customer’s money, we cannot be pushing for laxer regulations like other start-ups,” added Kim Sung-joon, founder and CEO of Lendit, who also participated in the panel. “But we also have to keep some doors open for our businesses to innovate and the industry to grow,” he added.
“Every year, [Korean] P2P firms process 1 trillion won [$892.4 million] in loans and save 150,000 borrowers approximately 70 billion won in interest,” Kim said. “Lendit alone was able to save 10 billion won for consumers in the past three years.”
In Korea, the Korea Credit Bureau and NICE Information Service assign everyone a credit rating between 1 and 10 based on their debt levels and overdue payments on loans, with 10 being the worst credit rating.
Most people with a credit rating over 5 face difficulties in qualifying for low-interest loans from banks, and have to resort to high-interest lenders such as credit-card companies and savings banks, which often charge interest well over 15 percent.
P2P firms like Lendit and 8percent, however, are able to offer borrowers low interest from savings on overhead costs. Relying heavily on technology, they are also able to mitigate risks for investors by offering them the option to spread their investment across several different loans simultaneously while showing them exactly how much in tax and service charges is being deducted from interest earnings.
BY KIM EUN-JIN [firstname.lastname@example.org]
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