Bad Credit Ratings Removed

The government said Friday that over 99,000 formerly delinquent borrowers who have repaid their loans will have their credit records cleared as of May 1. Borrowers who are currently in arrears on their loans and are classified as delinquents will be able to clear their records if they repay the balance in full before the end of May.

The move, previewed Thursday by Finance Minister Jin Nyum, is part of a comprehensive assistance plan targeting lower-income households and smaller businesses announced Friday. In it, the Ministry of Finance and Economy said it will introduce a bill before July that will limit interest rates charged by private money lenders on smaller loans.

As of the beginning of May, delinquency records by borrowers who have repaid the loans in their entirety will be deleted from the Korea Federation of Banks' database. Individual banks will be encouraged by the Financial Supervisory Service to follow suit. Borrowers who repay loan balances in arrears in May will also be entitled to the pardon.

The benefits will exclude delinquent borrowers who were found to have engaged in fraudulent activities to obtain their loans, the ministry said.

The government and the Millennium Democratic Party also said a bill will be introduced to establish a law to protect lower-income households and businesses engaging in financial activities. It will include limiting the interest charged by private money lenders to 40 percent annually up to an undecided loan amount. The head of the financial policy bureau at the Finance Ministry, Lee Jong-ku, said, "The amount of loan for which the rule would apply will likely be set higher than 5 million won ($3,800)."

The law will, if enacted, require private money lenders to register with local governments. Violators will face criminal charges, the ministry said.

Private lenders are expected to oppose the bill. "You have to look at the people who come to us for loans," a lender operating in southern Seoul said. "We have our system of credit analysis, and these tend to be people whom banks or other financial firms find unacceptable for loans." Limiting interest rates in such cases is unreasonable, he said.

by Song Sang-hoon