Victims speak up after gov`t declares war on illegal lending

A mortgage lender in Samcheok, Gangwon Province, was called a tyrant. Among the 13,000 residents there, 250 of them borrowed money from him.

He imposed high interest rates on loans to small merchants, becoming owner of three buildings in a couple of years. He also forced debtors who failed to repay to either write a body abandonment memorandum or locked them up in a car. His victims kept quiet on his illegal acts for fear of retaliation.

With the government declaring war on illegal private lending in May, however, one victim reported the lender to police, who then arrested him. The suspect was convicted and sent to prison for lending 3 billion won (2.8 million U.S. dollars) to 179 small merchants at interest of 60-400 percent between May 2008 and June this year, and for illegally taking 2.5 billion won (2.3 million dollars) from them.

In South Chungcheong Province, another private lender was arrested in August on the charge of imposing up to 3,700 percent in interest. Between August 2009 and February this year, he charged up to 3,704 percent in interest to 82 merchants, including restaurant and karaoke bar owners, to illegally earn 270 million won (251,865 dollars). A police officer said, "He imposed massive interest by taking interest initially and lending again when the debtor failed to repay."

A massive number of illegal private lenders have been arrested recently. Prime Minister Kim Hwang-sik held a briefing session Monday at the Financial Supervisory Service building on plans to crack down on illegal private lending. Kim said more than 10,000 illegal private lenders were arrested between April 18 and Dec. 7, adding that the government collected a combined 280 billion won (262 million dollars) in taxes. In addition, 86,000 cases of consulting and damage reports were identified, far more than the 25,000 cases registered at a financial support center for working people under the finance watchdog.

An official at the Financial Commission Service said, "Along with the government`s aggressive action to eradicate illegal private lending, debtors who had been treated as criminals started to request help."

The war on illegal private lending is backed by financial institutions. An employee at a smaller company borrowed 10 million won (9,328 dollars) from three mortgage lenders in 2009 at annual interest of 44 percent to help pay for the wedding of one of his children. He had trouble paying even the interest, however, since he earned just 1.2 million won (1,119 dollars) per month. The man saw a newspaper ad for a damage reporting center against illegal private lending, and found that he could transfer his debt to a financial product of Korea Asset Management Corp. with a lower interest rate of 11 percent. He converted his existing loans through this product in April. The financial product was expanded in scope to help 2,208 people with 18 billion won (16.79 million dollars).

The government will build systems to protect low-income people next year as the prolonged economic slowdown will only spur more illegal private lending. Prime Minister Kim said, "Illegal private lending cannot be eradicated with a temporary crackdown and punishment. We will continue to promote protective measures throughout next year."

constant25@donga.com