The Suffering From Private Loan of 200% Annual Interest Rate Is Still Serious

Ms. Chung (31 years old) was shocked as visiting a private loan company to borrow money for the repayment of card loan.

All of 3 private loan companies she visited required high interest rate of 200-240% annually. Ms. Chung said, “All of the companies I visited demand for more than 200% annual interest rate, I didn’t have another choice.”

The regulation of Private Loan Business will be enforced from 27th of this month, however, private loan market still keeps high interest rate.

At 25th, according the Financial Supervisory Service (FSS) and private loan industry, private loan companies increase interest rate highly, or threaten borrowers to collect the loan before the enforcement of the regulation. So the market is under utter disorder.

Under the regulation, violation and threat to collect loan will be subject to 5 years imprisonment at maximum and the maximum interest rate is 66% annually. So the operation range of the private loan company will be contracted.

Among the suffering reports of private finance to FSS, the suffering from high interest rate increased rapidly from 107 cases in the first quarter, 127 cases in the second quarter and 324 cases in the third quarter.

Illegal behavior such as violation for collection increased from 98 cases to 110 cases and to 190 cases.

Cho Sung-mok, Team leader of Non-Institutional Finance Team, commented, “Considering that most of the victims suffering doesn`t report, actual suffering will be very serious.”

Even if the regulation is enforced, most of the private loan companies is estimated not to register the business with the reason “It is not profitable.” And maybe operate illegally. So the suffering from the private loan will be maintained.

Yoo Se-hyung, The Chairman of Private Loan Association, said, “According to the result of preliminary registration, only 6% responded to register the business.” And he added “Estimating 40,000 companies in whole of the country, only less than 4,000 companies will register.”

The registration of private loan will be postponed by three months after the enforcement of the regulation, so the deadline of the registration is 26th of January of 2003.

In the future, to minimize suffering, a person should borrow from registered companies and the person should check Business Registration, Private Loan Registration, and Private Loan Prospectus in the office.

FSS said, “When using a registered company, if a dispute happens, the dispute can be solved by Provincial Arbitration Committee ”

Dong-Won Kim daviskim@donga.com