Financial Authorities Extend Principal Repayment Moratorium for Individual Debtors Affected by COVID-19 for the Fourth Time

[Asia Economy Reporter Song Hwajeong] Financial authorities have decided to extend the principal repayment deferral for individual debtors struggling to repay household loans due to COVID-19 by three months until the end of September. Along with this, the application period for the personal delinquent debt purchase fund will be extended by six months until the end of this year.

On the 26th, the Financial Services Commission announced that, together with all financial sectors and related institutions, it has decided to further extend the application period of the "Strengthened Support Measures for Vulnerable Individual Debtors" considering the repayment burden on low-income and vulnerable groups caused by the impact of COVID-19.

Accordingly, the application period for principal repayment deferral by individual financial companies will be extended by three months from the end of June to the end of September, and the application period for the personal delinquent debt purchase fund will be extended by six months from the end of June to the end of the year. Additionally, the scope of eligible debt for purchase will also be expanded.

The Financial Services Commission, all financial sectors, and related institutions implemented the strengthened support measures for vulnerable individual debtors to prevent those whose income has decreased due to unpaid leave, loss of work, etc., caused by COVID-19, from facing disadvantages in financial use due to household loan delinquencies. Through three subsequent extension measures, it contributed to alleviating the repayment burden on vulnerable groups such as low-credit and multiple debtors. This measure was first extended from the end of December 2020 to the end of June 2021, then extended again to the end of that year, and subsequently extended to the end of June this year. The strengthened support measures for vulnerable individual debtors include ▲special pre-workout programs by individual financial companies ▲debt adjustment special cases by the Credit Counseling and Recovery Service ▲the establishment of the Korea Asset Management Corporation (KAMCO) personal delinquent debt purchase fund.

The target for the household loan pre-workout special case is individual debtors who have difficulty repaying household loans due to income reduction after the COVID-19 outbreak and who are delinquent or at risk of delinquency. However, those judged to have very low chances of recovery in the future or those who have received household credit loans from three or more financial companies are excluded from support.

Eligible debtors will be supported with a principal repayment deferral of six months or more. After the deferral period ends, repayment schedules will be readjusted considering the debtor's requests as much as possible. There is no deferral or reduction of interest repayment, and additional financial burdens such as fees or penalty interest due to support during the deferral period are prohibited. Furthermore, financial authorities have urged restraint on excessive collection and sale of personal delinquent debts incurred between February 1, 2020, and December 31, 2022.

Applications for the household loan pre-workout special case can be made by contacting the lending financial company by phone to confirm eligibility, then applying online or in person. For guaranteed low-income loans, applications can also be made to the lending financial company. Debtors who have already received a one-year repayment deferral through the pre-workout special case can reapply.

The purchase target of the personal delinquent debt purchase fund is unsecured personal loans (up to 2 trillion KRW, face value basis) with delinquencies occurring between February 1, 2020, and December 31, 2022. Claims under court or Credit Counseling and Recovery Service (CCRS) debt adjustment procedures, disputed claims regarding claim existence, etc., are excluded from purchase targets. However, if requested by financial companies, claims delinquent since February 2020 and under court or CCRS debt adjustment procedures can also be purchased. Financial companies must sell eligible claims only to KAMCO if sale is unavoidable for internal soundness management. Debtors who applied for debt adjustment with CCRS but failed can apply for their claims to be purchased by KAMCO.

Financial authorities and related institutions plan to continue efforts such as launching special guarantee products for the lowest credit borrowers in October and expanding the supply of policy-based low-income financial services to reduce the repayment burden on vulnerable groups.

A Financial Services Commission official said, "The financial sector will steadily extend the repayment deferral measures and promote a smooth landing support so that individual debtors do not face sudden repayment burdens in the future," adding, "We will continuously review necessary policy measures to enable vulnerable individual debtors to engage in normal economic activities, comprehensively considering the recovery level from COVID-19 damage and the conditions of the low-income economy."