[The Editors' Verdict] From a Nation That Erases Delinquencies to One That Remembers Diligence

The Disillusionment of Diligent Debtors
and the Collapse of Credit Order

The record-breaking credit amnesty implemented by the Lee Jaemyung administration in August has begun to take shape, shaking the foundations of financial order. On the surface, the measure, which erases the delinquency records of debtors unable to repay their debts, appears to be a policy aimed at supporting ordinary citizens. However, beneath the surface lies a sense of disillusionment among those who have repaid their debts faithfully, as well as the risk of moral hazard that undermines market trust.

In the second half of this year, the total debt held by beneficiaries of the credit amnesty amounted to 163 trillion won, of which only 23 trillion won (14%) was actually repaid. The remaining 140 trillion won or so remains outstanding. Notably, beneficiaries prioritized repaying card loans and loans from private lenders, both of which have a significant impact on credit scores. In fact, the repayment rate for the card industry was 25.5%, and 19.7% for private lenders-higher than in other sectors. As a result, the average credit score of those granted amnesty rose by 30 to 40 points. Approximately 290,000 people became eligible for new credit cards, and 230,000 were able to obtain bank loans. Concerns that credit risk is shifting from lower-tier to upper-tier financial institutions, such as banks, are by no means exaggerated.

Furthermore, 1.17 million people who received amnesty last year borrowed an additional 5 trillion won and became beneficiaries of the credit amnesty once again within just one year. This means that the issue of “duplicate amnesty” cannot be avoided. Repeated amnesties send the wrong signal to the market that “if you can just hold out, you’ll be rescued again.” In this way, credit amnesty is at risk of becoming a mechanism that entrenches a “cycle of delinquency” rather than a tool for debtor relief.

The “criteria for amnesty” are also problematic. Under the current system, amnesty is granted based on individual loan cases rather than on the individual. If a person has five delinquent loans, repaying just one results in the immediate deletion of that record. This structure allows for an increase in credit score even when only a portion of the debt is repaid. In contrast, those who repay all their debts in full may still have a delinquency record for up to five years. This is a contradictory system in which diligence is penalized. In fact, it is difficult to find any country outside of Korea that repeatedly implements credit amnesties. The first recorded instance was in 1999, when the Kim Daejung administration granted amnesty to 1.06 million people who became credit delinquents during the foreign exchange crisis. Since then, the Moon Jaein administration (2.28 million people), the Yoon Sukyeol administration (2.86 million people), and now the current administration have each provided amnesty, with estimates suggesting that up to 3.7 million people have benefited this time.

Of course, there are times when credit amnesty is necessary. Exceptional circumstances such as the COVID-19 pandemic or the shock of high interest rates can justify giving people a second chance. However, expanding amnesty to “everyone” is dangerous. Ultimately, the credit system is a “system of memory.” Trust in the future is based on records of past transactions. If the government arbitrarily erases those memories, the market can no longer trust individual credit. Trust is at the core of finance. The more often amnesty is granted, the more financial institutions will be forced to raise interest rates and reduce lending. The resulting harm will fall on diligent debtors and the general public.

Like the “Debt Relief Order (DRO)” in the United Kingdom or bankruptcy systems in the United States, there should be a record of responsibility even after relief is granted. In Korea, credit amnesty erases all traces. When records disappear, so do the lessons. If the government truly wants to help ordinary citizens, it should provide tangible rewards to diligent debtors, such as preferential interest rates, credit points, or tax benefits.

We should aim to become a “country that remembers diligence,” not a “country that erases delinquencies.” Once trust in credit is lost, it can take decades to recover. While debt can be forgiven, trust cannot. The widespread deletion of credit information only weakens the incentive to repay debts faithfully and increases the frequency of defaults. Ultimately, this could become a poison that undermines the strength of the Korean economy.