From January 1, 2020, to August 31 of this year, individuals and sole proprietors who have not been able to repay debts in arrears of up to 50 million won will have their arrears history information deleted if they repay the entire amount in arrears by December 31 of this year.
The Financial Services Commission noted on the 11th that it plans to tentatively implement these credit recovery support measures on September 30. The commission explained, "Even if the working class and small business owners unavoidably fell into arrears due to the economic downturn caused by the novel coronavirus and high interest rates, this will limit the sharing and utilization of arrears history information to allow for a quick return to normal economic life if they sincerely repay the entire amount."
From January 1, 2020, to June 30 of this year, approximately 3.24 million individuals and sole proprietors have been in arrears. Of these, 2.72 million have already repaid the entire amount in arrears and qualify for credit recovery support. The remaining 520,000 will qualify for the support if they repay their arrears by December 31 of this year. The Financial Services Commission plans to establish a system to verify eligibility for credit recovery support starting September 30.
Under this measure, completing debt repayment is expected to raise credit scores, preventing disadvantages in terms of interest rates, limits, and new loans. Last year, individuals who repaid the entire amount in arrears during the credit recovery support program saw an average increase of 31 points in their credit scores, while sole proprietors saw an increase of 101 points.
An increase in credit scores allows borrowers to switch existing loans to lower-interest loans, and also enables credit card issuance or new loans. According to the Financial Services Commission, during last year's credit recovery support measures, over 26,000 individuals received credit cards and over 113,000 received new loans from first-tier financial institutions.
Regarding concerns about moral hazard from credit recovery support, the Financial Services Commission explained, "Only borrowers who fully repay their arrears will qualify for credit recovery support, so the concern over moral hazard is limited," adding, "They will not endure long-term disadvantages due to arrears in the vague expectation that credit recovery support will be conducted."
The reason for setting the arrears amount at 50 million won or less is that "compared to the situations during the 2021 and 2024 credit recovery support programs, the damage from COVID-19 has been prolonged, and the prolonged high-interest rate situation and economic downturn have compounded during this emergency period," he noted. "The standard for long-term small arrears debt adjustment support (bad bank) is set at 50 million won or less for over 7 years, which was also taken into account."