To prevent moral hazard in programs such as the New Leap Fund that forgive the debts of long-term borrowers in arrears, a legal basis has been established to check holdings of stocks and virtual assets when reviewing a debtor's repayment ability.
According to the Financial Services Commission on the 23rd, a revision to the Credit Information Use and Protection Act that allows debt adjustment agencies to use deposit and savings accounts, securities and other financial assets, virtual asset holdings, and other income and property information (such as tax and real estate information) to assess a debtor's repayment ability without the debtor's prior consent passed the National Assembly's plenary session.
The New Leap Fund purchases en bloc and extinguishes or restructures the claims of individual borrowers in arrears for 7 years or more with debts of 50 million won or less (including sole proprietors). Until now, the financial authorities could not check financial asset or virtual asset holdings without the debtor's consent when assessing repayment ability.
Under the revision, when assessing a debtor's repayment ability, a debt adjustment agency may receive from the data-holding institutions not only information on financial assets such as deposit and savings accounts and securities, but also virtual asset holdings and property information such as tax and real estate records. The debt adjustment agency only needs to notify the party that the debtor's assets were queried.
This special measure will apply temporarily for three years from the effective date. The law is expected to take effect in Aug., three months after promulgation.
The Financial Services Commission (FSC) said it plans to run the program so that benefits go to those who truly need support, preventing moral hazard and issues of fairness with diligent payers.