1.9 Million Exposed To Threat From Loan Sharks

The suicide of famous actor Ahn Jae-hwan for alleged threats from moneylenders is focusing attention on private loan sharks.

The government is trying to get the private lenders under control, but the narrow gate to banks are driving people with poor credit ratings and even famous stars like Ahn to head to loan sharks.

According to the Financial Supervisory Service, the number of private lenders totaled 18,384 in June, growing over 59 percent from 2003. The number is estimated to be as many as 40,000 when including unregistered private lenders. The market has been growing, with an increasing number of them developing new markets such as loans for plastic surgery.

The number of complaints filed to the regulator regarding unfair activities by the usurious lenders recorded 2,062 for the first half this year, which is a remarkable increase when considering there were a total of 3,421 such cases through 2007. Most of the complaints were about the high interest rates that exceeded the 49 percent cap, and illicit activities in collecting the money.

Despite the high interest rates and possible physical and mental threats when one fails to pay back the money on time, doors to banks are often closed for desperate borrowers. For people with a low credit rating, rated eight or below, it is almost impossible to get loans from not only banks but also savings institutions and other capital companies. Credit delinquents, totaling over 2.3 million, are also barred from banks as even people with credit ratings higher than delinquents see private lenders as their only option. Women without jobs and contract workers are other major clients of private lenders. Entertainers, who often don't have collateral or stable income, often head to private lenders as did the late actor Ahn.

According to the Financial Services Commission, the number of people who borrowed money from private lenders totaled 1.89 million ― a 5.4 percent of total adults. It means, one out of twenty Koreans are borrowing money from private lenders. They borrowed 8.7 million won on average.

The private loan market is estimated to total 16.5 trillion won, which is larger than the 9.8 trillion won loans given by savings banks.

The government bans levying more than 49 percent interest rate, but the cap is often disregarded by loan sharks. According to the commission, the private lenders charge around 70 percent annual interest rate on average.

More people are expected to head to the private lenders as banks are tightening lending, but many of the loan sharks are left uncovered by the regulator. According to data submitted to the National Assembly, the number of government officials in charge of monitoring these loan sharks totaled only 158.

Source: http://www.koreatimes.co.kr/