Kwon Hyung-min (not his real name), a self-employed tradesman in a provincial market, found himself in hot water after borrowing 2 million won ($1,700) from a private lender, which he promised to pay back in 10 days.
He missed the deadline, and thanks to annual interest of 360 percent, his liabilities eventually snowballed to 200 million won.
The loan shark used illegal methods including violence to collect the debt. Some other borrowers shut down their businesses as they were unable to handle the pressure.
A housewife surnamed Lee called a private moneylender’s number she found on a community information provider out of desperation after being denied loans from a mutual savings bank because of her low credit rating.
She applied for a loan of 5 million won using her son’s car as collateral. Only 4.4 million won was wired to her bank account after 600,000 won was deducted as commission.
The loan shark took 400,000 won every month in addition to the monthly interest of 200,000 won. When Lee was unable to pay the principal, three men came to her house, threatened her and punctured her car tires.
Unregistered, illegal moneylenders often falsely tell people in need of quick cash that they are registered firms and that they will not charge extra fees for extending the term of the loan.
|President Lee Myung-bak speaks about the ongoing crackdown on loan sharks with officials of the Financial Supervisory Service and the prosecution during his visit to a call center at the FSS headquarters in Seoul on Wednesday. (Yonhap News)|
They entice people through ads on community information providers, flyers, phone calls, text messages and the Internet.
According to a survey of 463 merchants in Namdaemun Market by a group of registered moneylenders called the Consumer Loan Finance Association, 52 percent of the respondents said they took out private loans because they couldn’t get loans from financial institutions.
Thirty-eight percent of them said they needed the money to pay the cost of living, while 37 percent said it was for business.
More than two out of five people who used private loans said they suffered from repeated phone calls, visits, threats and violence by debt collectors.
The number of mortgage fraud cases increased by about fivefold from 571 in 2009 to 2,685 last year, according to the CLFA.
The government opened call centers two weeks ago to receive reports from victims of loan sharks as part of a crackdown on predatory lending through the end of May.
Nearly 16,000 cases have been filed already, and the police have apprehended over 300 people for illegal debt collection, unregistered lending business, mortgage fraud and interest rates that exceed the legal limit of 30 percent.
But other than stopping illegal debt collection, there isn’t much the government can do to help the victims recoup the damage.
“Interest rates over the legal limit are invalid, but the loan sharks rarely return the excess interest,” an official at the Financial Supervisory Service said.
“Borrowers have to file civil suits to get the excess interest back, but most of them are too afraid the usurers might retaliate after the government probe.”
Of the 3,400 cases transferred to the prosecution and the police, only about 250 have been signed up for assistance from the Korea Legal Aid Corporation in filing a lawsuit.
On Wednesday, President Lee Myung-bak said the state-run legal aid agency should proceed with lawsuits against loan sharks on behalf of all the victims to help them redeem illegally charged interest during a visit to a call center at the FSS.
The nation’s top financial regulator referred about a quarter of the complaints it received to the Korea Asset Management Corporation to arrange shifts to low-interest microcredit loans offered by banks.
But only about 3 percent met the conditions to transfer to banks’ microcredit loans.
Those with arrears or no formal income are not eligible to apply, and people who have been declared bankrupt or have assets above a certain level were also denied the loans.
Kwon Hyouk-se, chief of the Financial Supervisory Service, said Monday that local banks agreed to donate employees’ corporate credit card points to raise funds to rescue victims of usury. The fund, however, can’t be bigger than 5 billion won, but borrowing from loan sharks is estimated at trillions of won.
By Kim So-hyun (firstname.lastname@example.org)