Lawmaker aims to regulate bad loans

Rep. Je Youn-kyung of the Minjoo Party of Korea smiles during an interview with The Korea Times at her office at the National Assembly in Yeouido, Seoul last week. The one-term lawmaker vowed to regulate banks’ practice of selling bad loans to debt collectors. / Korea Times photo by Choi Won-suk

By Kim Jae-won

Rep. Je Youn-kyung of the Minjoo Party of Korea is a newcomer to the National Assembly. It has been less than a month since she became a member of parliament, but the activist-turned-lawmaker has already submitted a bill to prevent debt collectors from claiming debts that have expired.

The bill nicknamed “Preventing dead debt from being revived” brought on a strong backlash from financial institutions which sell their bad loans to debt collectors, but she said that she aims to regulate them with tougher rules.

“I plan to submit another bill which mandates that financial firms reschedule loans for their customers,” said Je in an interview with The Korea Times at her office at the Assembly. “The bill still allows them to sell their bad loans to debt collectors, but only after they make sufficient efforts to reschedule the debts.”

According to Rep. Je, who cited data from the Financial Supervisory Service, the amount of loans that have expired reached 12.4 trillion won as of August last year. Among them, 162 financial institutions sold the rights to collect these bad loans worth 412.2 billion won to debt collectors at 12 billion won, or 2.9 percent of the amount.

The firms sold the loans at such a low price because they classified them as non-performing loans, giving up collecting the debts which had not been paid for a long time. In 2010, Samsung Card sold 210.6 billion won of bad loans to the now-defunct Solomon Savings Bank for 8.4 billion won, or 4 percent of the amount.

Je said that current laws and regulations are too oppressive for debtors while giving too much authority to creditors, letting them easily seize the assets of debtors. She said financial institutions should share in the responsibility for bad loans with debtors as the firms failed to evaluate debtors’ credit appropriately.

The lawmaker drew attention from the public for her advice to debtors on a television show, such as, “You do not need to pay back all your debt,” or, “You should work with your lender to reschedule your debt before you start paying it back.”

This caused a stir among both debtors and creditors, but she said she just wants to help those struggling to pay back their debts and inform them of their rights that are guaranteed by law. She maintains that she supports the market economy, and denies that she is a radical activist.

“I see debt as a means of investment,” she said. “I understand that debtors of bad loans should be given penalties. But, if the penalties are so harsh that a debtor commits suicide it is not good solution for anybody. This is what I want to prevent.”

Je said she is ready to compromise with her colleagues from the governing party to make real changes in the policies, leaving the door open for negotiations. The ruling Saenuri Party has objected to such an idea, saying it would undermine the autonomy of the financial institutions and violate the principles of market economy.

Je explained her policies about regulating bad loans, discussing this beyond the one-hour interview by 20 minutes we had planned. It remains to be seen whether her eagerness will bring the results she wants, for she will have to battle not only other legislators but also tough lobbyists from big financial firms.