To help delinquent debtors get back on their feet, Korean authorities plan to draft new legislation that enables them to request a debt restructuring program to financial institutions and have a mediator in the process, the Financial Services Commission said Wednesday.

The “consumer credit bill” can force local lenders to cease debt collection activities, upon the debtor‘s request, and offer a revised version of a repayment program within 10 working days.

Currently, borrowers can apply for debt restructuring from either the court or Credit Counselling & Recovery Service, a nonprofit organization aimed at supporting debtors in financial difficulties. Through the envisioned legislation, the government seeks to activate debt reconstructing activities in the private sector. 

The bill also limits the number of debt collection calls from the current twice a day to seven times a week. Also, debtors can request lenders not press for debt repayment through certain methods, including phone calls, as well as during certain times of day.

“Overdue debts are normally derived from unexpected hardships, including unemployment, business closure, income reduction, health problems and accidents. Beleaguered debtors are faced with mounting debts as well as excessive debt collection practices,” Financial Services Commission Vice Chairman Sohn Byung-doo said during the ninth meeting of the personal overdue credit management task force held online. 

According to a recent survey conducted by CCRS, 44 percent of the respondents underwent debt restructuring due to involuntary unemployment and a consequential decline in earnings, while 39 percent of them applied for such programs due to a sharp increase in living costs.
 
“If debtors in arrears and repayments hide themselves to avoid excessive debt collection, commercial lenders would consequently face increased management costs, while failing to take loans back, creating a vicious cycle,” Sohn said.

“Leading creditors and debtors to establish fair principles in terms of debt-servicing, Consumer Credit Bill will provide a safety net for debtors suffering from unanticipated financial problems.”

Designed to replace the current Act on Registration of Credit Business, etc. and Protection of Finance Users, authorities will submit the new legislation to the National Assembly for final approval. If enacted by the end of this year, the proposed regulations will be implemented in the second half of 2021, the FSC said. 

By Choi Jae-hee (cjh@heraldcorp.com)