How policy loan data is tracked is changing

System shifts from per-contract to per-loan tracking

Fix addresses blocked withdrawal rights on additional loans

More loans on record will carry no credit score penalty

[Yonhap]
[Yonhap]

Starting July 1, borrowers will be able to exercise their right to cancel each insurance policy loan individually, following an overhaul of how insurers track policy loan data. The change means that even when multiple loans are taken out under the same insurance contract, each one can be canceled separately.

The Financial Supervisory Service announced Tuesday that it is changing the way policy loan data is managed — shifting from a per-contract basis to a per-loan basis.

A policy loan allows a policyholder to borrow within a set portion of the surrender value of their insurance policy. Because the loans require no credit check and provide quick access to cash, they are widely regarded as a go-to option during economic downturns. More recently, however, demand has spread beyond banks into the policy loan market, driven by debt-fueled investment in buoyant share and real estate markets.

Under the Financial Consumer Protection Act, consumers are guaranteed the right to cancel a financial product contract within a set period after signing up, without penalty. For loan products, including policy loans, cancellation is permitted within 14 days of receiving the contract documents or the loan proceeds, whichever comes later.

The problem was that policy loans can be taken out multiple times under a single insurance contract. Because insurers had been bundling all policy loan data under one contract record, additional loans taken out after the cancellation window on the original loan had closed were sometimes denied withdrawal rights.

For example, if a borrower took out a first policy loan on July 1 and a second on Aug. 1, the cancellation window for the first loan would have closed on July 15 — and under the old system, the Aug. 1 loan could not be canceled separately.

In response, the FSS decided to bring policy loan record-keeping in line with ordinary loans by tracking each loan as a separate contract. Under the old system, two loans drawn from the same insurance policy — identified by a single policy number — counted as one. Going forward, each loan will be counted individually, so three loans will register as three separate entries.

The new approach will apply to all policy loans issued from July 1, allowing borrowers to exercise cancellation rights on additional loans as well. The FSS has already coordinated with financial institutions and credit bureaus to ensure that a higher loan count will not result in any penalty to a borrower's personal credit rating.

Insurers will be required to clearly inform customers, at the time a policy loan is issued, that cancellation rights are guaranteed on a per-loan basis.

"We will continue to work closely with the financial industry to closely monitor how consumer protection rules are being applied in practice and to keep improving unreasonable practices," an FSS official said.


psj@heraldcorp.com