By Lee Hyo-sik
Staff Reporter
The government has cut the maximum interest rate private moneylenders can charge to 49 percent from 66 percent to lessen the interest burden on borrowers. Also, financial services companies are not allowed to charge overdue interest of more than 49 percent.
A Cabinet meeting presided over by President Roh Moo-hyun Friday, passed a revised ordinance on private loan companies cutting the interest rate cap by 17 percentage points.
Under the revision, private moneylenders who charge over 49 percent in annual interest rates will face up to three years imprisonment or a maximum fine of 30 million won. Also, unregistered businesses or loan sharks can be sentenced to up to five years in prison or a maximum of 50 million won in fines.
People usually borrow money from private moneylenders after being rejected by banks and other financial institutions because of their poor credit ratings. The debt often snowballs and it becomes impossible for the debtor to shoulder the high interest.
According to the Ministry of Finance and Economy, the private loan market was estimated to have reached 18 trillion won last year, with 3.3 million people borrowing at high interest rates. On average, registered moneylenders levied an annual interest of 181 percent, higher than the legal ceiling of 66 percent, while unregistered ones demanded an average 217 percent.
A ministry official said the lowered interest rate ceiling will ease the financial burden on people who have borrowed funds from both private moneylenders and financial institutions, adding that loan firms will assess borrowers' credit records more closely before providing loans.
Also, the Cabinet approved a revised income tax law to allow families to deduct 2 million won for each of their children, including adopted ones, from their income taxes. Salaried workers and the self-employed will also be allowed to deduct expenditures on children's after-school classes as well as bank loans for housing rental.
Companies that create jobs for the low-income bracket and the handicapped will be exempt from corporate taxes and pay 50 percent less in income taxes for a four year period. Also, the government will prohibit farmers and fishermen, who falsely report the number of their farming vehicles and fishing boats to the authorities to get more tax-free diesel fuel, from purchasing fuel for two years.