Gov’t action needed to root out illegal private loans

“400,000 won to Manger Ko, 900,000 won to Assistant Manager Cho,” read debt records on the 8-page file by single mother Park Jeong-mi (pseudonym, age 35). The first money that was lent was only 400,000 won. While working at ‘Miari Texas’ in Seongbuk-gu, Seoul, which was about to be demolished due to redevelopment, Park had no way of borrowing money to pay her babysitter who was taking care of her kindergarten-aged daughter on behalf of her father in his 70s who was suffering from a stroke. She loaned money from illegal private loans.

She believed that the money was a lifesaver, but in the end, it turned out to be a trap. Interest snowballed. When the principal and interest could not be repaid within the deadline, an unbearable interest rate of ‘100,000 won per minute’ was charged, hence the vicious cycle. They sent hundreds of text messages to Park’s acquaintances as well as her daughter’s kindergarten teacher, saying she was engaged in prostitution. Less than 15 days later, Park passed away, leaving a will to her daughter that said, “I will continue to love you in the next life.”

“One cannot help but be enraged,” said President Yoon Suk Yeol in response to the news report. He instructed the prosecution and the police to mobilize investigative capabilities to eradicate illegal debt collection and financial authorities to reexamine financial support policies for the public to prevent illegal private loans.

But all of this is like déjà vu. President Yoon expressed his anger at a meeting on illegal private lending in November last year, calling it “a vicious crime sucking out the blood of the weak.” Previously, in August 2022, the government launched the ‘Pan-Government Task Force (TF) to Combat Illegal Private Finance’ in response to social outrage following the mother and her two daughters in Suwon committed suicide together because they could not withstand the debt demands of an illegal private loan shark.

Low-income individuals continue to fall victim to illegal private loans. According to the Microfinance Research Institute, up to 91,000 people with low credit accessed illegal private loans last year. This is because loan companies, the last means of resort in the financial framework, have virtually closed their doors. During the same period, the number of loan companies providing new credit loans decreased from 64 to 37.

We need to secure a social safety net by significantly increasing awareness and support of small loans for living expenses, which provide loans of up to one million won to people with low credit. Since its launch in March last year, the number of loan borrowers has rapidly increased. The delinquency rate also increased to 26.9% as of the end of August, more than double compared to the end of last year (11.7%). As financial authorities removed restrictions on the number of loans taken out, the demand for loans is expected to increase, suggesting the need to discuss ways to secure additional financial resources during the National Assembly's budget deliberation process. Measures waiting time, which currently takes about five days after making an appointment, should be reduced as much as possible.