[EDITORIALS]Credit card morassThe number of credit delinquents who failed to pay back money borrowed from financial institutions has reached nearly three million. Some 60 percent of them, or 1.76 million, did not pay their arrears on time. Due to the recent economic slowdown and business difficulties, credit card companies are not issuing as many cards and have lowered the cash withdrawal limit. Their move exacerbated the problem. The nation virtually lives under the threat of a financial crisis caused by credit card defaults.
Credit delinquencies are not only growing in numbers, but the nature of the debt is getting worse. People are borrowing money from as many as four credit card companies, and more than half of arrears amount to more than 10 million won ($8,200) on each of these cards. Half of the delinquents, or 1.43 million, are in their 20s and 30s. They belong to the most economically active age group.
Credit card companies which issued cards competitively and increased consumer loans rapidly are largely responsible for the sharp increase in the number of delinquents. Consumers borrowed recklessly without considering their ability to repay. They should learn how to restore their credit rating.
A large number of credit delinquents threatens the stability of financial institutions. Credit card companies suffer from a default rate of more than 10 percent.
There is no short cut to a solution. We must slow the growth in the number of delinquents first and then gradually put solutions in place. Contrary to what was intended, banks do not help the matter by cancelling credit lines or reducing credit limits to their customers. The financial authorities, concerned with the insolvencies of credit card companies, allowed them to increase their service fees, driving delinquents into a corner.
Relief measures, such as giving consumers wider access to bankruptcy procedures, should be complemented. Policy of putting credit violators under legal protection was introduced more than four months ago. That only around one thousand people have benefited from the new law shows that the system still is not working as it should.