Support Reaches 881 Cases by March This Year with Sharp Increase... Financial Authorities "Thoroughly Prepared"
Most Relief Cases Involve Exceeding Maximum Interest Rates and Illegal Debt Collection... 34.7% in Their 30s
[Asia Economy Reporter Kwangho Lee] Mr. A, residing in Changwon City, borrowed 500,000 KRW under the condition of repaying 800,000 KRW after paying weekly interest of 160,000 KRW for four weeks from an unknown person whose name was unknown but only the phone number was known through the internet site 'Daechul○○' in March 2020. When one interest payment was delayed, the creditor contacted him by phone and used abusive language and threats. After receiving the case from Mr. A, the financial authorities appointed a lawyer from the Korea Legal Aid Corporation as the debtor’s representative. The debtor’s representative immediately contacted the creditor and demanded the cessation of illegal debt collection activities against the debtor. Although the creditor protested to the debtor’s representative asserting their rights, after the debtor’s representative explained the purpose of the system, the creditor promised to reach an amicable agreement with the victim and stopped further illegal debt collection activities.
The Financial Services Commission and the Financial Supervisory Service announced on the 16th that they supported 915 cases last year (893 cases with debtor representatives and 22 cases with litigation representatives) through this free debtor representative support project.
In particular, 881 cases have been supported from the beginning of this year until March, showing a steep increase.
The free debtor representative support project was implemented by the government from January 28 last year to help vulnerable groups recover from illegal private loans. The government budget allocated for this project last year was 1.15 billion KRW.
The Legal Aid Corporation reviews cases and provides representation and consultation for victims who have suffered or are at risk of illegal debt collection from unregistered or registered lenders or who have taken loans exceeding the legal maximum interest rate.
Once a debtor representative is appointed, creditors can no longer visit or contact the debtor by phone or text message. Since a lawyer deals with the creditor on behalf of the debtor, the debtor is freed from abusive language and threats.
Debtors with an income below 125% of the median income (2,285,000 KRW per month for a single-person household) can also apply to the corporation for representation in claims for the return of unjust profits due to loans exceeding the maximum interest rate, damages, confirmation of non-existence of debt lawsuits, personal rehabilitation, or bankruptcy.
Looking at the number of debtor representative applications last year, a total of 632 people applied for debtor representative support related to 1,429 debts.
In the first quarter, the early stage of the project, the number of applications was somewhat low at 85 cases, but thanks to the introduction of an online application system and promotion, the numbers increased to 410, 370, and 564 cases in the second, third, and fourth quarters, respectively.
The most common cases were those applying for relief from illegal debt collection and loans exceeding the maximum interest rate, totaling 971 cases. By age, 30s accounted for 34.7%, 40s for 29.1%, 20s for 23.1%, and 60s for 3.2%. By region, residents of the metropolitan area accounted for the largest share at 50.3%.
Among the 22 cases where lawyers from the Legal Aid Corporation provided free litigation representation, 10 cases have been closed, with 8 cases resulting in victories that recovered rights worth 156 million KRW. The remaining 2 cases were resolved through settlements.
A Financial Services Commission official said, "We will thoroughly prepare for the increased demand for relief from illegal private loan damages following the reduction of the maximum interest rate (effective July). We will strengthen linkage with the Korea Inclusive Finance Agency’s self-support (funding) support and respond to additional support demands through budget securing."
He added, "When receiving debtor representative applications, we will not only link with the Legal Aid Corporation but also strengthen cooperation with investigative agencies to eradicate illegal acts. If victims want criminal punishment for creditors, we will collect evidence and request investigations or enable administrative measures."
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