Days numbered for joint liability system of lendingLast year, a 60-year-old surnamed Jeon was locked up inside a mid-size car and threatened by a 47-year-old surnamed Lee for not paying him 100 million won ($89,915).
According to the police back then, Lee pressured Jeon to bring the money immediately or else he would “remove” his organs and sell them.
The 100 million won Lee demanded was part of the balance from selling a building to a doctor for 900 million won. The doctor, a friend of Jeon, killed himself after being pressured by Lee. When the doctor bought the hospital building in Cheonan, South Chungcheong, Jeon co-signed for his friend.
As part of efforts to prevent such secondary debt pressure, the government is expected to abolish the country’s joint liability system in the nonbanking sector, including savings banks and insurance companies, starting in July. Whether private lenders like loan sharks will be included has not been decided. Last May, the government had already scrapped the system in the banking sector so lenders no longer needed to obtain a written agreement from a co-guarantor to assume secondary debt.
“We have decided to abolish the joint liability system for all financial institutions, including card and insurance firms and savings banks,” an official from the Financial Services Commission (FSC) was quoted as saying yesterday by Yonhap News Agency.
The FSC spokesman said the financial regulator would announce the change as early as today.
Currently in Korea, 1.96 million people have stood joint surety for loans and are responsible for a total of 75.8 trillion won. Though they have not received loans themselves, because they have signed to take responsibility for others’ loans, they are also responsible for the debt.
The moves by the FSC come after President Park Geun-hye during the transition period earlier this year said the joint liability system should be abolished because it burdens too many people.
“The financial industry should take care [of loan payments] themselves [by devising their own risk-management measures] instead of overly depending on the joint liability system,” Park was quoted as saying by her spokesman Yoon Chang-jung. “The system prevents many people from starting again after experiencing business failures [over fear of debt].”
There are concerns, however, that abolishing the system will make it especially difficult for small and mid-size firms and low-income households to get loans.
The Park administration has been brainstorming and introducing financial policy measures focusing on SMEs and ordinary households and on reducing the country’s snowballing debt. On Monday, the state-run Korea Asset Management Corporation started receiving applications from people seeking government support in writing off their debt. According to the FSC, as of Wednesday a total of 40,769 people had applied.
By Lee Eun-joo [firstname.lastname@example.org]