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Interest law against loan sharks

Posted April. 22, 2001 18:53,   


The published results of investigations by the National Tax Service into vicious loan sharks were shockingly abhorrent. They forced borrowers to write a memorandum promising to give internal organs or not to object to being sold to brothels; some even resorted to violence and committed murder to exact repayment. These horrendous revelations lead us to doubt if the rule of law exists in this country.

The nation stands aghast at the exorbitantly high interest rate of 1,440 percent a year or a loan shark who collected 75 billion won in such usurious interest in three years. The government authorities must be called to task for their inaction in dealing with this situation. Many borrowers were unable to pay their debts because the lenders went missing on the due date and deprived borrowers of their property on the ground of default. Failure of the law to come to the aid of those poor victims calls the raison d`etre of government into question. Though belated, it was fortunate that the tax service started looking into the dubious books of usurers, and the prosecution launched a clampdown on organized gangsters involved in the loan shark business as the press focused on exposing their crimes. Officials should know that mere short-lived crackdowns cannot solve the problem. As long as there are people who depend on private moneylenders, usurers will be here to stay.

This social blight calls for strong countermeasures to be taken jointly by all the government agencies concerned. Government action needs to be extensive and fundamental as most of the victims are low-income citizens. Giving some disincentives to habitual defaulters to bring them into the fold of institutional banking or tightening up the conditions required for issuing credit cards may have limited effects. However, the enactment of an interest rate limitation law to place an interest ceiling of 30-40 percent a year that is being promoted by the government and ruling party as the best answer to the question requires judicious examination. Undoubtedly it is necessary to protect borrowers, but its impact on private money lending conducted in the black market is questionable. If the law is revived, usurers are likely to cut down the money supply and add the cost of risk to the already enormous interest rates. The common people might face greater difficulties borrowing money from private sources -- negative repercussion officials should take into account.

Of course, the blame for all problems arising from loan sharks should be laid primarily upon individuals. At the same time, the government is responsible for the current state of the economy in which many cash-strapped people are obliged to seek usurious loans. Going beyond applying short-run, stop-gap remedies to severe symptoms, the government ought to explore a comprehensive economic policy aimed at attacking the malady at its root. Only a fundamental approach can produce a lasting solution.