[EDITORIALS]Debt blacklist’s day is overIn a rare convergence of opinion, the government, the governing party and the main opposition have all agreed that the government’s blacklist credit delinquents should go. The list, therefore, looks likely to disappear only three years after its establishment.
The concept does, indeed, have problems. To declare anyone who has delayed payments of over 300,000 won ($280) for more than three months a credit delinquent is problematic. By this yardstick, virtually anyone runs the risk of becoming a credit delinquent, regardless of his income or repayment capability and the individual policies of financial institutions. And once branded a credit delinquent, individuals face disadvantages in finding jobs and in any number of other economic activities.
Following the credit card crisis, the number of delinquents in the country at one time reached a high of 3.8 million, and this has led to the evaporation of domestic demand ― the biggest problem facing our economy today. A more desirable system would be to allow the financial institutions to establish and implement their own standards of recovery and sanctions.
However, we need to guard against the misperception that the withdrawing of the label of credit delinquent means that non-payment will be tolerated. The government has so far redeemed credit delinquents ― but at the cost of serious moral hazards. The government should make clear that despite the abolition of the system, debts and records will stand in order to prevent negative side-effects. The financial institutions should provide detailed repayment programs to help existing delinquents repay debts and support them in their recovery.
The next step would be to create a system for each financial institution to collect and evaluate the credit records of individuals, comprehensively and systematically. The government has announced that it would activate the establishment of a credit bureau that collects and sells credit information of individuals. Initial steps are already being taken. The establishment of a financial intelligence system to prevent the proliferation of credit delinquents and halt the vicious cycle of credit delinquency leading to financial insolvency and economic hardship, is absolutely essential.
This is the way to a healthy credit society and a sophisticated financial system.