New program to help reduce debt for credit delinquents

A new debt reduction program will cut debt size for credit delinquents by using the National Happiness Fund. The plan will cover loans from a host of lenders ranging from banks and credit card companies to savings banks and loan companies. To prevent intentional payment delays with the debt reduction program in mind, however, only those who fell behind on payments before the end of August last year will be eligible.

The Financial Services Commission on Monday said the beneficiaries of the fund will be selected by using the end of last month as the baseline. The plan was a campaign pledge of President Part Geun-hye.

Only those behind on payments for the past six months as of the end of last month are eligible for the program. Switching from loans with high annual interest rates of more than 20 percent to those of around 10 percent will be available for those who made payments over the past six months as of the end of February.

Lee Hae-seon, the commission`s director general for microfinance policy, said, “Those who intentionally deferred making payments or took loans with high interest with the expectation of the launch of the National Happiness Fund cannot benefit from it.”

Critics warned of moral hazard stemming from the program, saying it will discriminate against those who made payments and help those who did not.

abc@donga.com