Overdue payments of less than 100,000 won no longer reflected in credit ratings


The government on Sunday announced a set of measures to provide the poor with better access to financial sources as mounting household debts loom large over economic recovery.

The package proposed by the Financial Services Commission centers on the overhaul of credit rating guidelines, market interest rates and individual bankruptcy rules. It will also expand microloan programs for low-income earners.

Beginning in July, the government will lower the maximum interest rate offered by private money lenders, from 44 percent to 39 percent.

The government will also revise regulations by October so that an overdue amount of less than 100,000 won ($91.8) would no longer be reflected in the borrower’s credit rating.

The FSC said the overhaul would improve the nation’s feeble financial safety net for the poor.

“As the country pushes to fight household debt issues, low income families with weak creditworthiness are feared to undergo a squeeze in loan supplies,” the FSC said in a statement.

“The cut in maximum interest rate will prevent low-income earners from becoming victims of loan sharks and will ease their debt burden.”

The regulator also seeks to put a ceiling on commission given to private loan brokers.

“The 7 to 10 percent commission rate on loan brokers is one of the reasons for the high interest rate charged,” the FSC said. A 3 to 5 percent rate is being mulled for the limit.

Pre-workout program for individuals, originally scheduled to end this month, will be extended for an additional two years.

The debt-managing scheme applies to delinquents whose overdue period is less than 90 days.

The government is also planning to ameliorate terms for microfinance. The FSC has over 3.2 trillion won in budget this year to lend to those debt-ridden families at a much lower rate.

Critics say the program, launched nearly one and a half years ago, failed to significantly ease debt burdens of households struggling under rising costs.

Rising household debt has been one of Seoul’s top policy concerns and a good reason for the central bank to hold fire.

Interest-bearing consumer debt reached 937.1 trillion won as December, up 8.9 percent from the same period a year earlier.

Household debt represents 146 percent of household income, according to the UBS, which sits above that of the U.S.

Mortgages and huge private education expenses have taken up the country’s private spending capacity, leaving very little for rainy days.

By Cynthia J. Kim (cynthiak@heraldcorp.com)