Debt restructuring program update presented at Cabinet meeting; President Lee proposes special body to manage personal debt

President Lee Jae Myung presides over a Cabinet meeting combined with an emergency economic review session at Cheong Wa Dae on Monday. [Yonhap]
President Lee Jae Myung presides over a Cabinet meeting combined with an emergency economic review session at Cheong Wa Dae on Monday. [Yonhap]

Financial Services Commission Chairman Lee Eok-won said Monday that banks and other regulated financial institutions are increasingly writing off long-overdue special debt before the standard seven-year threshold, even when the debt is only five years old.

Lee made the remarks after presenting an update on the government's long-overdue debt restructuring program at a Cabinet meeting combined with an emergency economic review session held at Cheong Wa Dae. "The mood is changing," he said.

He said the government last week announced, through its Inclusive Finance Transformation Conference, plans to tighten oversight of the debt-purchasing and collection industry by upgrading the licensing requirement from a registration system to a full permit system — a move aimed at protecting vulnerable debtors from aggressive long-term collection practices. He also reported that the Saedoyak Fund, the government's long-overdue debt restructuring vehicle, purchased an additional 960.2 billion won (about $635 million) in long-overdue debt between March and May, halting collection actions against an additional 116,000 people.

According to the FSC, the Saedoyak Fund has cumulatively purchased debt covering 750,000 people, totaling 9.1 trillion won.

President Lee Jae Myung directed officials to pursue the resolution of long-overdue debt "as forcefully and continuously as possible," and asked how debt already sold to collection agencies or consumer lending firms was being handled.

Lee Eok-won said consumer lending firms have been the hardest to bring on board. "These are not the original creditors — the debt has changed hands multiple times, and they say they paid money for it, so negotiations over price and other terms are not going smoothly," he said. The FSC is purchasing long-overdue debt at around 5 percent of face value.

He added that while the top 30 firms hold most of the debt in question, 15 have agreed to participate. "We will work through various channels to bring in the remaining 15," he said.

President Lee also proposed creating a special body to manage and resolve long-term personal debt between private individuals — debt that falls outside the purview of financial institutions.

Citing a recent case in which a family died by suicide due to debt, he said, "What kind of primitive society is this?" He added that cases where people are driven to such extremes are more likely to involve personal debt between individuals than debt owed to financial institutions.

If you're thinking about self-harm or suicide, contact the Ministry of Health and Welfare's helpline 1393, available 24/7. Please request a translator for English-language services.

"Debt owed to financial institutions is managed systematically, but cases like this seem to fall through the cracks," he said. He directed Prime Minister Kim Min-seok to explore establishing a dedicated body — similar to the "Geunyangdeurim Center" model — where people crushed by debt could report their situation and receive help. "We need to be systematically tracking and managing personal debt somewhere," he said.


ehkim@heraldcorp.com