State-run credit amnesty mulled to help credit defaulters

A state-run credit amnesty is under consideration to help certain people who were declared credit defaulters in the wake of the 1997 foreign exchange crisis and the 2000 credit card crisis.

According to sources in the domestic financial industry Tuesday, the Financial Services Commission is seeking to make such defaulters eligible for support from the People’s Happiness Fund, a campaign pledge of President Park Geun-hye to tackle mounting household debt.

Most of the defaulters are not official credit defaulters, as loan delinquency records at the Korea Federation of Banks are deleted seven years after registration. They still face difficulty, however, in making financial transactions because their records remain at financial institutions.

President Park recently stressed that the fund’s purpose is not simply helping people in need, but also allowing those whose ability to conduct financial transactions is blocked because of business failures in the wake of financial crises to create new economy.

A senior commission official said authorities are checking the statuses of people who became credit delinquents in the aftermath of the 1997 foreign exchange crisis. “We will draw up appropriate standards for selectively including those eligible for help."

The financial watchdog will reschedule debtor liabilities by taking them over across the board. It is also considering integrating into the fund a bad loans bank established to dispose of non-performing loans caused by the 2003 credit card crisis. The bad bank took over the debts of 1.26 million people at the time, but has yet to finish rescheduling debts owed by about 740,000 people.

The commission will also help those who are not credit defaulters but whose credit ratings were lowered because of card debts owed before or delayed repayments of prior debts.

Another plan is to assist recipients of the fund find jobs, just as KAMCO, a state-run bad loan agency, does with the Credit Recovery Fund.

A financial regulatory official said, “The People’s Happiness Fund is intended to help those willing to get back on their own two feet again economically. So their assistance should come in various ways, including the earned income tax credit, to enhance their ability to repay debts.”

Nevertheless, authorities will not write off debts for those suffering from financial difficulty because of home purchases through excessive amounts of loans. Instead, the plan is to reschedule their debts by extending maturity or changing repayment conditions.

abc@donga.com