Critics claim financial regulators have been negligent in cracking down on the excessively high or illicit lending rates for low-income earners charged by private moneylenders. Regulators recently instructed first-tier commercial banks to offer lower interest rates to homeowners.
Though the average rate on mortgages or housing-collateralized loans ranged between 3 and 5 percent, some middle- and high-income households can access lower rates due to the government’s effort to revitalize sagging property transactions.
In contrast, there has been no such move to provide rate relief to low-income earners who are forced to resort to secondary banks or loan sharks to alleviate their huge interest burden.
Typically, savings banks and capital services firms charge borrowers rates between 10 and 25 percent according to a customers’ credit standing. Meanwhile, private lenders offer rates around 30-34.9 percentand some unregistered lenders charge annual rates as high as 1,000 percent.
“We will not reveal any immediate options to relieve the low-income borrowers’ debt because such matters require the cooperation from several government ministries,” said an official from the Financial Services Commission.
Data by the Financial Supervisory Service shows the number of registered private moneylenders rose to 8,794 as of late June 2014. In the same period, customers rose to 2.6 million, most of them college students, housewives and self-employed workers who did not have a stable source of income.
In addition, about 1.4 million low-income earners are estimated to have borrowed urgent money from illegal “loan sharks” on extremely high lending rates, according to economics professor Shim Ji-hong from Dankook University.
Amid rising criticism about snowballing household debt levels in Korea, the government recently doubled the size of “Big Operation,” a debt transfer program that switches high, floating-rate mortgage loans to low, fixed-rate amortized loans.
