Compulsory Deletion of the Records of Bad Credit Holders Causes Troubles

Financial institutions are expressing a strong opposition to the government`s policy of eliminating the list of bad credit holders.

Financial institutions are complaining that on the one hand, the government has banned credit card solicitation to strengthen the standard of credit card approval, citing a possible structural weakening of financial institutions. On the other hand, the government is coercing the institutions to relax their credit management practices as the biggest method to prevent bad debts.

The problem started earlier this month over the pardoning of bad credit holders who were registered in the Bank Associations’ shared bank network. With many concerns about the rise of bad credit holders as becoming a social problem, the Democratic Party and the government opted for the easiest solution of wiping out the list of bad credit holders.

However, although the Bank Association`s information has already been erased, most of the bad credit holders applying for a new credit card are still being rejected, because credit card companies own the lists and share the lists of repeat violators of credit deadlines. For that reason, in an on-the-spot checking move, the Financial Supervisory Service (FSS) contacted representatives from card companies who are in charge of credit management and asked them not to give put the bad credit record holders at a disadvantage, with the exception to those who are still delinquents. As a result of this effort, the card companies all agreed to follow the FSS guidelines. Yet, a few of the credit companies are holding fast to their intention of keeping blacklist information separately in the event of a possible change in the situation. An unnamed representative of a credit card company said "How can we get rid of the precious blacklist information for which we have paid a high cost and put in a great deal of efforts?"

Financial institutions for the most part reacted negatively to this new credit management policy, saying that it is an unacceptable measure.

A source from a foreign financial institution criticized the government saying, "To treat bad credit holders equally with those who have good credit is an irrational idea, a conception that is utterly devoid of basic financial principles." He added, "If those hundreds of thousands of repeat credit offenders regain their cards, we can only expect to see an increase in the number of payment delinquencies."

Pointing out the fact that banks became ineffective after lending money to structurally weakened companies, a representative of a credit card company said "Whether or not to lend money is a decision to be made by a financial institution, not by the government." Another source argued that "It is only reasonable to apply a higher interest rate to frequent offenders, because the chance of their repeating delinquent payment reaches 80 to 90 percent."

Sung Dong-Ki esprit@donga.com