As personal rehabilitation hit a record high in the first half of this year, credit information companies, whose main business is debt collection, are increasingly worried. With illegal private lending spreading negative perceptions of collection and some people coming to see debt relief as if it were a right, there are cases where even legitimate collection work is dogged by complaints and threats of reports.
According to court statistics, the number of personal rehabilitation filings in the first half of this year was 81,723, up 13.2% from the first half of last year (72,192). First-half personal rehabilitation filings surpassed 80,000 for the first time on a half-year basis.
As the Lee Jae-myung administration stresses eradicating illegal private lending and easing debtor burdens, credit information companies see the spread of the perception that "collection = illegal" as the biggest problem. Credit information companies are supervised by the Financial Supervisory Service and comply with related rules such as contactable hours and frequency and visit requirements. Illegal private lending that does not follow these rules is a crime, but collection that complies with the rules is legitimate work.
A financial industry official said, "I recently called a debtor for collection and was told they would report me to the Financial Supervisory Service (FSS). I worry that the debtor's complaint could lead to stricter oversight or regulation by the FSS." The official noted, "It is legitimate debt collection, but there are parts where we feel constrained."
Some borrowers are abusing debt adjustment programs to reduce interest and principal debt. Under the Act on the Support for Financial Life of Low-income People, borrowers who have been in arrears for 90 days or more can apply for debt adjustment. If debt adjustment is approved, all interest is waived, and part of the principal is also reduced depending on the recoverability of the claim and its accounting status.
If recovery is deemed possible, up to 30% of principal is reduced; if deemed impossible, up to 70% is reduced. According to the Credit Counseling & Recovery Service (CCRS), the number of individual debt adjustment applications in the first half of this year was 240,898, up 19.3% from the first half of last year (201,783).
The financial industry warns that if this trend continues, the burden on borrowers who faithfully repay their debts could grow. As the likelihood of recovering claims declines, financial companies have no choice but to reflect the loss risk in the lending rate, and that expense is borne by other borrowers.
Another financial industry official said, "Inclusive finance is essential, but it is not desirable for the perception to spread that 'if you refuse to repay and hold out, the government will reduce your debt,'" adding, "It could create a structure in which those who repay faithfully are disadvantaged."