Lee Jae-myung Advocates "10% Cap on Loan Interest Rates"... Jeon Hae-cheol Proposes "Credit Score System" as Supplementary Measure
[Asia Economy Reporter Han Seung-gon] Jeon Hae-cheol, a member of the Democratic Party of Korea, and Lee Jae-myung, Governor of Gyeonggi Province, have shown differing opinions regarding the statutory maximum interest rate for loan companies.
Earlier, Governor Lee sent a letter to the Democratic Party leadership and 176 affiliated lawmakers requesting to lower the maximum interest rate from 24% per annum to 10%.
In response, Representative Jeon proposed an alternative to convert credit ratings into a point-based system, arguing that vulnerable groups might be marginalized. On the 12th, Jeon introduced recent legislative discussions on lowering interest rates on his Facebook, emphasizing that "the financial accessibility of vulnerable groups should not be overlooked" in discussions about lowering the statutory maximum interest rate.
He added, "It is necessary to ensure that excessive interest burdens do not fall on ordinary citizens. Approximately 3.9 million financially vulnerable people (with credit ratings below grade 7) cannot borrow funds from financial institutions if the interest rate ceiling is set at 10%."
He continued, "Due to the drop in interest rates, many ordinary citizens who are rejected for loans in the formal financial market will have no suitable alternative markets and will inevitably be driven to illegal private loans," criticizing the proposal.
As an alternative, Representative Jeon suggested, "We should also consider policies that enhance the flexibility of the financial market while expanding the foundation of inclusive finance, such as converting credit ratings to a point-based system and introducing an evaluation system dedicated to financial services for ordinary citizens, so as not to undermine the access of vulnerable groups to formal financial institutions."
Earlier, on the 7th, Governor Lee sent a letter to the party leadership and all 176 affiliated lawmakers requesting to lower the registered loan companies' interest rate, which reaches up to 24% per annum, to 10%.
Governor Lee stated, "In Gyeonggi Province, we have requested the government to lower the statutory maximum interest rate for loan companies to 10% per annum, but it is true that there are limits to what local governments can do alone until it is legislated," adding, "I ask for your great interest in lowering the maximum interest rate for loan companies."
In response to Governor Lee's letter, Representative Kim Byung-wook wrote on his Facebook the same day that he "agrees with the intent (of Governor Lee's letter)." The following day, on the 8th, Representative Kim Nam-guk introduced a bill to amend the Interest Limitation Act and the Loan Business Act, aiming to limit the statutory maximum interest rate from the current 24% per annum to 10% per annum.
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