Gov`t to Ease Restrictions on Credit Card Companies

There is a growing controversy over the government policy of softening restrictions on credit card companies since it had put restrictions on them last year.

Although the government claims that active credit card consumptions are needed for pulling the economy out of recession, the move is expected to produce more and more potential credit delinquents, experts point out. Currently, the number of credit delinquents reaches 3.41 million.

In particular, the government policy to ease restrictions is bringing about suspicions that it is intended to have curry favor with credit delinquents in their 20s and 30s with the next general election ahead.

Finance and Economy Minister Kim Jin-pyo discussed economy-related pending issues in a meeting with Planning and Budget Minister Park Bong-hum and Financial Supervisory Commission (FSC) Chairman Lee Jung-jae, in Myongdong, central Seoul on Sunday.

As a result, the deadline for credit card companies to lower their cash loan rate to 50 percent by the end of next year will be extended by three years to 2007.

“As credit card companies running out of time and decreasing the limit of cash loans rapidly, they had difficulties in management, leading to a larger number of card defaulters and economic contraction,” said Finance-Economy Minister Kim Jin-pyo.

An increased limit of cash loans by credit card companies, thanks to the measure, will be able to help users avoid being credit delinquents but, eventually, their debt will snowball.

“Credit card companies are lowering the delinquency rate too much in an attempt to avoid corrective measures,” he added. “The FSC considers easing restrictions in light of credit card companies` management and delinquency rates.”

The government decision comes amid contracting domestic demand, declining investment, walkouts by the Hyundai Motor Co.`s unionized workers, damages by the recent typhoon, and volatile exchange rates and oil prices, despite the recovery in the global economy.

Meanwhile, the government is poised to raise the limit of issuing the Foreign Exchange Stabilization Bond by 5 trillion won.

In addition, it decided to speed up carrying out 3 trillion won of supplementary budget for restoration of the areas hit by the typhoon and 1.2 trillion won of budget for disaster prevention within this year.

kkh@donga.com witness@donga.com