“No Need to Pay Back on Time”

Mr. Park who works for ‘A’ Bank as a loan manager was in an preposterous situation a couple of days ago when he made a phone call to a self-employed businessman, Mr. Jang who are not paying back his credit loan of five million won for four months.

In July, 2001, Mr. Jang borrowed ten million won from the Bank and had paid back five million won in June this year but has not paying back the rest of the money since. Mr. Park asked why he was not paying back, and Mr. Jang answers, “The Kookmin Bank gives an exemption of 50% of the original money. Don’t I get any of those reductions?” asking arrays of questions about exemption on debts.

Mr. Park asked again, “Since it is not that of a big amount of money. I consider it is better for you to pay it back.” The answer was his hanging up the phone after saying, “You have to wait a little more while.”

According to the financial industry on the 20th, many financial organizations are trying to save credit card insolvents from overwhelming debts, and there are growing numbers of moral hazard phenomena that people who are capable of paying back their debts or credit card payments resist paying them.

People who have already paid the debts are making complaint calls to banks and credit card companies and there are difficulties in gathering claims from normal debtors.

After the news broke out that Korea Asset Management Corporation will exempt 70%of the original amount of card loans that were handed over from the card companies, there were congestions of incoming phone calls inquiring about the news at the loan collection department of ‘B’ credit card company from their different branches and customers, which prevented them from working on their normal task.

An employee of this company said, “Mainly, the customers ask whether or not their credit card loan was handed over to the Asset Management Corporation, and the employees at our branches ask for guidelines on how to react to their customers’ asking for the exemption.”

Also, they are getting many complaint phone calls from customers who have already paid for their overdue loans saying why they had not been exempted on their loans.

There are criticizing views over the exemption of the original amount of overdue loans by the Kookmin Bank.

An employee at ‘C’ Bank said, “There were cases that banks gave a discount to the original amount of their loans that were depreciated. However, it is the first time that the Kookmin Bank gives exemption to normal overdue loans. There are issues of equity raised with the customers who pay back their loans on time.”

The card companies are appealing that they are getting complaints of treating their customers unfairly because the Asset Management Corporation announced that they would give 70% exemption of the original amount after they buy the insolvent credit card loans for 10 ~20% of their price.

Lim, Byung-chul, researcher at Korea Institute of Finance, said, “We have to prevent the moral hazard situations that ‘free-riders’ who are capable of paying back their debts resist paying back when supporting the credit insolvents.”

Lee, Sang-yung, Professor of Law at Dongguk University, also pointed out saying, “The excessive support such as the 70% exemption of the original amount can be suspected as a pork-barreling considering the general election next year.”

Chi-Young Shin Ji-Wan Cha higgledy@donga.com cha@donga.com