Family and acquaintances of debtors affected by illegal debt collection also receive free legal services

Authorities Expand and Revamp Debtor Representative Services

From now on, not only the debtor themselves but also their family and acquaintances will be able to receive free legal services related to illegal debt collection damages.

On the 4th, the Financial Services Commission announced that, together with the Financial Supervisory Service and the Korea Legal Aid Corporation, it will expand and reorganize the debtor representative service to allow those related to debtors who have suffered from illegal debt collection to receive free legal services on par with the debtor.

Since 2020, the government has been operating a free debtor representative support project targeting low-income and vulnerable groups who have suffered (or are at risk of suffering) from illegal debt collection by illegal private lenders or have taken out loans exceeding the legal maximum interest rate (20% per annum).

However, the current system limits the support for free legal services to the debtor only, and there have been criticisms that it has limitations in directly protecting family members and acquaintances who have suffered illegal debt collection damages due to the debtor's debt, according to the authorities.

In particular, recently, as financial fraud methods have become more sophisticated and malicious illegal debt collection continues using online means to inform or threaten family and acquaintances about the debt, the need to protect related parties has increased.

According to a survey conducted by the Financial Services Commission targeting users of the debtor representative free legal service, 78.9% of respondents experienced illegal debt collection. The most common type of illegal debt collection was "informing third parties such as family and acquaintances about the debt (acquaintance collection)" at 72.2%. After experiencing illegal debt collection, changes in daily life included "becoming afraid to answer phone calls (78.9%)" and "feeling uncomfortable seeing family members (71.1%)."

For example, if an illegal private lender sets conditions for concluding an illegal loan contract that require the debtor to provide contact information of acquaintances or family members and consent to acquaintance collection, and makes the debtor sign an unfair loan acknowledgment, the illegal lender contacts the debtor’s family and acquaintances using the obtained contact information to spread rumors and threaten them, thereby extending the damage to those around the debtor.

Accordingly, the Financial Services Commission decided to expand the support target of the debtor representative service to include related parties of the debtor who have suffered or are at risk of suffering illegal debt collection damages due to the debtor’s debt, supporting up to five related persons per debtor. Related persons include those living with or sharing livelihood with the debtor, the debtor’s relatives, and those working at the debtor’s workplace.

If selected as a support target, the Korea Legal Aid Corporation will provide legal consultations to related parties to respond to creditor illegal debt collection acts such as notifying third parties of the debtor’s debt or demanding repayment, and guide them through the legal aid application process if litigation is necessary. Additionally, to raise awareness among creditors about illegal acts, the written notice informing the debt collector of the appointment of a representative will include a phrase prohibiting contact with related parties.

Related parties who have suffered (or are at risk of suffering) illegal debt collection damages can apply online through the "Debtor Representative and Litigation Lawyer Free Support Application" on the Financial Supervisory Service’s Illegal Finance Reporting Center website (application by related parties is possible after the debtor applies for the debtor representative service). If online application is difficult, applications can be made via telephone consultation at the Financial Supervisory Service’s Illegal Private Finance Reporting Center.

If the affected party (debtor or related party) cannot fill out the application form themselves, a representative may apply by attaching documents proving their status as the party’s representative. If the party is under 14 years old, a legal guardian may apply on their behalf.

Kim Jin-hong, Director of the Financial Consumer Bureau at the Financial Services Commission, stated, “Notifying third parties of the debtor’s debt or demanding repayment is obviously illegal, but illegal debt collection targeting third parties has been widespread. We urge victims suffering from illegal debt collection not to hesitate and to use the free debtor representative legal service.”