No easy hand in this card gameKim Gun-suk is a 22-year-old former university student saddled with high-interest credit-card debts of more than 40 million won ($33,000). His debts are the least of his worries. Right now, Mr. Kim (not his real name) is in an Incheon jail, charged with the murders of his 49-year-old mother and 87-year-old grandmother and the attempted murder of his 25-year-old brother at their home in Bucheon three weeks ago.
When police arrested Mr. Kim following a five-day manhunt, he told them that he was being chased by debt collectors and was desperate to pay off his bills. His father had already paid off half of his original 80 million won debt, run up with seven credit cards, including two owned by his girlfriend and her father.
Police say that on the night of the murders, Mr. Kim ― who had dropped out college to settle his debts ― had gone home to ask for more money. He allegedly flew into a violent rage when his family said they could no longer afford to help him.
According to the Financial Supervisory Service, there are 100 million credit cards issued in Korea ― more than two cards for every man, woman and child in the country. As of the end of May, 3.15 million card owners had been blacklisted by the Korean Federation of Banks for failing to meet payments on debts of more than 300,000 won over three months. Of these so-called “credit delinquents,” more than half were in their 20s and 30s ― about one in 10 young people.
The murder case involving the Kim family may seem like an extreme example of credit-card use spiraling out of control among Korea’s youth, but according to Park Seong-won, a detective with the Dobong police precinct in Seoul, credit card-related crimes are growing faster than any other kind in Korea.
Detective Park classifies credit-card crimes into two types: the first being directly related to credit cards, such as stealing or forging cards and stealing security numbers, while the second is a by-product of crippling debts, including burglaries, kidnappings and robbery-related murders.
“Starting two years ago, just about every case that has landed on my desk has been related to credit card problems,” Detective Park says. In one recent case, he arrested a 29-year-old Web designer suspected of kidnapping two young children. He said the suspect needed to pay back a 43 million won credit-card debt accumulated over two years. The kidnapping took place north of the Han River, in Seoul, and the parents were described as simply “middle class.” The suspect allegedly told police he nabbed the two girls not because their parents were rich, but because “they were easy to kidnap.”
In another case a month ago, however, a man kidnapped the daughter of a doctor from the ritzy neighborhood of Apgujeong-dong, in southern Seoul. He was later caught and admitted to police that he wanted the ransom money to cover mounting credit-card debts. Some Apgujeong-dong residents now say they don’t feel safe walking their neighborhood at night.
Credit card misuse is a desperate problem facing not only Korea’s youth and families, but whole swathes of the community, including police, politicians and financial institutions. But how did it happen? What has turned this once frugal society ― which used to boast one of the highest savings rates in the world ― into a nation of credit-card delinquents? The answer is “plastic patriotism.”
Caught in the current of the 1997 financial crisis, former President Kim Dae-jung ― desperate to raise government revenue ― legislated the mandatory acceptance of credit cards (ensuring such transactions would leave a paper trail for tax collection, as opposed to “invisible” cash), while providing tax breaks for those who used them. By 1998, restaurants, bars, business clubs and other establishments were required to accept cards for all purchases, with stiff penalties for noncompliance. According to Visa International, South Korea now has more stores that accept its cards than any other country in the world.
With government incentives to switch from paper to plastic ― and huge profits to be made by banks charging interest up to 21 percent per annum ― the streets of Seoul swelled with credit-card touts hawking to anyone who could afford them. And of course, many who couldn’t. Obtaining a credit card was easy. In 2001, there were about 26 credit card companies and banks issuing cards. Since competition was stiff, most began targeting students, housewives and the unemployed.
Hankuk University of Foreign Studies student Lee Yun-ah was 19 when she got her first card three years ago. Card promoters on the street simply grabbed her and asked, “Do you want a card?” She was supposed to get her parents’ permission. But, “I didn’t,” she says. She now has two cards and ― not surprisingly for many students in Korea with no other source of income ― her parents pay all her bills. The largest debt she claims to have run up in one month is 1 million won. “My parents were upset after that, so I didn’t use my card for three months.”
Korea University student John Ha, 24, says he got his first card three years ago. “I was drunk,” he says, “and I got a call from someone. I don’t remember what I said, but the next day, there was a card in the mail for me.”
The move to plastic was instrumental in extracting much-needed cash from the economy through higher taxes and domestic spending. But soon the government was faced with another problem: rising debts and debtors. This came as little surprise to financial and social analysts considering virtually no one in Korea relied on credit cards before 1998. People simply didn’t know how to control their spending.
As people fell deeper into debt, and realized they owed more than they earned, they looked for alternative ways to their bills. One common ploy is to use one credit card to pay the debt on another card. The 29-year-old Web designer ran up his card debt using this same method. Card companies have begun curtailing cash-advance services in order to block this practice.
Last year, many Hana Bank customers were able to get up to 10 million won in cash advances. Now Hana Bank limits cash advances to 3 to 5 million won. The government has also limited the number of cards that can be issued to one name to eight cards.
While experts may place much of the blame for mounting credit-card debt on lax standards, they also say that credit card problems are linked to the economy and poor spending habits. As a matter of fact, some experts like Mr. Kim Seong-dok with the Credit Recovery Supporting Services believe that too much government interference can wreak havoc in the balance of the free market.
Rather than encourage government regulation, the Credit Recovery Supporting Service is trying to educate young people about finances. By the end of 2003, Mr. Kim projects 50,000 applicants to its debt recovery program. More than half of the applicants are in their 20s and 30s.
Each day, between 400 and 500 people come into its Myeong-dong offices looking for help. Its 18 telephone operators field 500 calls every day. But the majority of counseling is done via the Internet.
Mr. Kim promotes paying up, noting that bankruptcy in Korea doesn’t necessarily afford protection. A third of delinquents who declare bankruptcy still must pay a significant portion of their debt. About 65 percent are excused, but their credit is ruined.
But even with all the problems that can arise from using a credit card, it’s hard to imagine life without cards. Could, say, a responsible Korea University student live without a credit card? Mr. Ha responds, incredulously, “I’d have to go to the bank every time I felt like using money!”
With credit card debt rising steadily, the government began to take action, and between March and May 2002, it banned major card companies from taking new applicants. Then, in July 2002, it ruled that card companies were no longer allowed to promote cards on the streets.
During the following months, card companies themselves began to enforce more stringent regulations. Many, such as LG Card, joined a credit record sharing system with other financial institutions. In order to receive an LG card, new applicants must now submit financial statements showing annual income, insurance coverage and property and car ownership. LG has also cut the credit limits of some clients.
Other financial institutes, such as Hana Bank, introduced a scoring system. New credit card applicants must now submit three months’ worth of financial records, according to Kim Cheon-wook, who’s in charge of business planning and administration at Hana Bank’s credit card division. Mr. Kim says the rate of new delinquents is slowing down. In March, the bank recorded 26,000 new delinquents; in April, 32,000; in May 25,000, while in June, the figure finally eased to 14,000.
The new measures on receiving a card may help, but there is still a long way to go. For one, there is limited support for students and young professionals who have racked up too much debt. Other than quitting school and getting a job ― or a getting a second job ― or relying on family and friends, most credit delinquents must work out their debt with the bank. Most banks wait three months before providing loan services, and by then, a person’s credit rating is shot.
Another option is to go to loan companies, called card ggang in Korean, which operate in the shadow of the law. These companies are set up like retail shops. They swipe the card as if for a purchase, but instead take a cut of the money and use the rest to pay back a loan. Interest rates are usually very high, often resulting in further debt.
One of the best options is to enroll in a credit recovery program. But even then, the acceptance guidelines are strict. Less than 3,000 delinquents are currently enrolled in a personal debt-recovery program, such as the Credit Recovery Supporting Services, which was created in October 2001. In order to be accepted, clients must fulfill several qualifications, including having less than 100 million in debt and owing money to more than two financial institutes. Those who are accepted work with counselors to create an installment payment plan that can last up to eight years. Sometimes the banks will lower their interest rates with the promise that payments will be made. During the repayment period, banks can’t harass the person to pay the full balance.
People who don’t qualify for the Credit Recovery Supporting Services program can still get counseling from the agency.
The agency’s Mr. Kim notes that there are more reasons to control credit-card spending. “Some companies are now running credit checks on prospective employees,” he says, noting that bad credit makes it difficult to land a job.
But Mr. Kim is pragmatic. “People have tasted what it’s like to have credit cards, so we can’t get rid of them. The problem is how to use them wisely.”
That’s the sort of advice that Kim Eun-mi, the Siheung resident, wishes that she had gotten earlier ― before she charged 1.5 million won in a one-month spending spree. “I wish I could take back that month,” says Ms. Kim, 22, who works part-time as a secretary. “Credit cards are like a drug.”
Keeping your credit and debt in check
Mastering Your Credit
It's smart to periodically check on your credit status, even when you have good credit. You can ensure that your credit remains in good standing and, perhaps more importantly, make sure no one is making fraudulent use of your name or cards. Contact the Seoul Credit Rating & Information Inc. (www.sci.co.kr or 02-3445-5000) or National Information & Credit Evaluation Inc. (www.nice.co.kr or 02-2122-4000).
Personal Workout System
The Credit Recovery Supporting Service (www.crss.or.kr) helps credit-card delinquents from declaring bankruptcy by providing counseling, renegotiating the interest charged by the card companies, extending the repayment period and possibly negotiating to have the debt reduced. The program requires delinquents to meet strict requirements, including debt amounting to less than 300 million won from at least two financial agencies, unpaid taxes totaling less than 30 percent of total debts, and debts from private lenders amounting to less than 20 percent of the total amount owed. Counseling hours are 9 a.m. to 5 p.m. weekdays and 9 a.m. to 4 p.m. Saturdays. Call (02) 6362-2000.
Loans from credit card companies
Most credit-card companies have loan services to help delinquents repay their overdue credit-card debts. The qualifications for this service are different from company to company. Hana Credit Card provides this service to people who have paid 10 percent of their principal and are more than two months overdue, and to people who are more than 2 million won in arrears. Interest rates for programs like these are very high, so careful consideration is required before taking this route.
Petition for Bankruptcy
If it's impossible to repay your debts, you can petition for bankruptcy to the district court as a last option. After the court issues a decree of bankruptcy, it will sell all your property and use the money to pay your creditors. If funds are still owed to your creditors, you will have to petition the court for an exemption for the remaining debts. People who file for bankruptcy aren't allowed to move from one residence to another freely. Public officials, public school teachers, doctors, lawyers, accountants and other licensed professionals may have to resign from their jobs and forfeit their licenses until the court restores their professional accreditation.
by Joe Yong-hee / Park Eun-sil