Lending group trying to get rid of loan sharks

South Korea’s money lenders association announced yesterday that it will come up with measures to bring underground loan firms and their backers into the mainstream, as the government is determined to control the 18-trillion won ($17.7 billion) industry whose operations remain largely unchecked by regulators.
Yoo Se-hyung, president of the Korea Finance Union, an association of domestic lenders, said yesterday he will hold a meeting with major loan firm backers “to establish a group to bring the sector into the public light.”
In Korea, many small loan firms are funded by wealthy individuals called jeonju, or backers, who receive interest payments on their investments.
The makeshift companies then lend the money to individuals or companies in need of quick cash, charging the borrowers interest rates that are a lot higher than those at regular banks.
Some of these loan shark organizations, including many known to be backed by organized crime, charge cash-strapped borrowers interest rates of up to 700 percent a year.
Such practices have often drawn public outrage, with media reports emerging of debt defaulters forced into prostitution or even made to sell their organs by the loan sharks.
The Korea Finance Union estimates there are about 18,000 loan firms nationwide, backed by 120,000 wealthy backers to the tune of about 18 trillion won.
The central government is now looking to control the largely unregulated sector, as it enforces from September a new law requiring those who lend money to others for a living to register themselves as a lender.
In the past, companies lending less than 50 million won a month to fewer than 20 customers without advertising were not required to report their business to the government.
For that reason, they were also exempt from the state-set 66-percent limit on interest rates that institutions could charge borrowers.
Many rich Koreans took advantage of the law, lending their money to loan firms and making hefty profits on interest payments.
But the new law is making the loan business a lot less attractive to Korea’s wealthy, a change that could well cripple the sector.
In order to offer a way out to the loan firms, Mr. Yoo said he will urge the individual backers to form official financing companies to lend their funds to local loan firms, which can then sell the loans to borrowers using their long-practiced sales skills.
“We will make the whole financing process more transparent by helping individual backers establish themselves as an official financial company,” Mr. Yoo said, adding he expects a trade group representing such financing firms to emerge soon.

by Kim Joon-sool, Jung Ha-won