Posted June. 07, 2005 06:37,
In January, a self-employed businessman Mr. Kim knocked on the door of a loan company, called card ggang in Korea, to borrow four million won to pay off his credit card bill. The interest rate was 18 percent per month. Those companies swipe the card as if for a purchase like a regular retailer, but instead take a cut of the money as a commission and lend the rest to the card holder at a very high interest rate.
The principal and interest for Kim to pay back for the first month was 4.72 million one (4 million + 0.72 million), but the next month, the amount increased to 5.57 million won. By the end of the year, the sum will soar to 29.15 million won.
As many people experience financial strains due to the prolonged economic recession, card ggang companies are mushrooming.
According to the Financial Supervisory Service, the number of fake retailers whose contracts with credit card companies were terminated due to illegal credit card transactions is 7,775, which is an increase of 59.8 percent from 4,866 in 2003.
Toughened crackdown helped reduce the number of police reports of damage by card ggang, sharply decreasing from 55 in 2002 to only seven last year.
However, an analysis of 341 card ggang businesses showed that the monthly commission rate went up by three percent from 15 percent in August 2004 to 18 percent in April this year. It means the principal will increase seven-fold after only one year.
The Financial Supervisory Service warned, Continued use of illegal credit card loans will not only lead individuals into a vicious cycle of bigger debt due to the high commissions, but also will leave them unable to conduct regular financial transactions as a result of being identified as delinquents who destabilize the financial market.