By Na Jeong-ju
Staff Reporter
President Lee Myung-bak called for measures Tuesday to protect low-income families from moneylenders demanding excessively high interest rates, indicating the administration will soon crack down on loan sharks.
``The loan business is growing very quickly, as ordinary people are suffering economic difficulties. I'm afraid that the problem may cause social unrest,'' Lee said at a Cabinet meeting at Cheong Wa Dae. ``It's necessary for the Ministry of Justice and the Financial Services Commission to take joint measures to reduce damage from loans with high borrowing rates.''
The remarks followed reports that a father took his own life after killing his 23-year-old daughter after finding out that she was forced by private moneylenders into prostitution as a means to repay her debt.
The daughter, a college student, borrowed three million won in March 2007 from a loan shark to run an Internet shopping mall with a friend. The loan contract she signed called for a 400-percent annual interest rate.
As she failed to repay the debt, the moneylender lent her more money, and her debt snowballed to as much as 15 million won one year later. She was unable to repay her debt, so the loan shark forced her to sell her body at a room salon.
At the Cabinet meeting, President Lee expressed deep regret over the news and told his ministers that such an incident should not happen again, Cheong Wa Dae spokesman Lee Dong-kwan said.
Low-income households with poor credit ratings are facing increasing difficulty in borrowing money from banks and other financial service companies in the wake of the global credit crunch, with many turning to loan sharks.
Savings banks, insurance companies and consumer financiers, formerly primary sources of funding for low-income families, have become reluctant to lend money to poor households as they were forced by the administration to improve their financial soundness.
The government cut the maximum interest rate private moneylenders can charge to 49 percent from 66 percent last September. Private moneylenders who charge over 49 percent in annual interest rates will face up to three years in prison or a maximum fine of 30 million won.
The regulation, however, has toughened borrowing conditions further for those with poor credit ratings.