“With no delinquent payments during COVID-19,” credit pardons for vulnerable groups are in full swing

Joint agreement for credit amnesty signed in earnest, spurring restrictions on information sharing
“Are only those who work hard to repay are fools?” There is also controversy over reverse discrimination in some quarters
Targets of credit amnesty are faithful repayers and vulnerable groups, ‘relief’ rather than preferential treatment

The full-scale process of ‘credit amnesty’ for faithful repayers has been established. On the 12th, financial sector associations such as the Korea Federation of Banks, Korea Federation of Korea Credit Information Service, and 15 credit information companies signed the ‘Financial Sector Joint Agreement to Support Credit Recovery for Common People and Small Business Owners’ at the Bank Hall. On this day, the agreement states, ‘If an individual and a self-employed person repay small delinquencies (less than 2021 million won) incurred from September 9, 1 to January 2024, 1 in full by May 31, 2,000, delinquency history information will be shared with each other. ·It contains the statement, ‘Use will be limited.’

Large-scale credit amnesty for ‘290 million people’ to be implemented as early as March

Credit amnesty refers to deleting delinquency history information so that vulnerable groups do not experience difficulties in future financial transactions. According to the current system, if a loan is delinquent by more than three months, the Credit Information Service will retain the borrower’s delinquency record for up to one year. This information is shared with financial institutions and credit rating agencies and is used for up to 3 years in financial transactions. However, once credit amnesty is in progress, sharing of information on the delinquency history of borrowers eligible for support will be restricted, and delinquency history will not be reflected in the credit evaluation of individuals and self-employed businesses by credit rating (CB) companies.

In this agreement, the ‘role’ of each institution for credit amnesty is specified. First, financial associations and national associations strive to improve financial accessibility by supporting credit recovery for those who faithfully repay their delinquent debts in full. Credit information companies and the Korea Credit Information Service will restrict the sharing of delinquent history information of those who faithfully repaid their delinquent debt in full and will not use it for future credit evaluations. Even if the financial sector uses information on the delinquency history of its customers for credit evaluation and credit screening, it minimizes disadvantages in loan terms and maximizes the possibility of credit recovery for vulnerable groups.

Financial authorities expect that approximately 290 million individual borrowers will be able to restore their credit through this credit amnesty. It is expected that the credit scores of approximately 250 million people (based on NICE) will rise from an average of 662 points to 701 points, and an additional 25 people will exceed the average credit score of new borrowers in the banking industry (NICE 863 points). Measures to restrict the sharing and use of delinquent history information are scheduled to be implemented as early as March after overhaul.

‘Reverse discrimination’ Even though the risk is high, the effect is certain

As credit forgiveness begins in earnest, the sighs of some borrowers are deepening. This is because there is a perception that those who faithfully paid their loans despite difficult conditions actually suffered losses. When an actual credit amnesty policy is introduced, self-deprecatory laments such as ‘It is meaningless to pay back diligently’, ‘People who pay sincerely are fools’, and ‘It is a reverse discrimination policy’ often flow out. There are also concerns that ‘moral hazard’ may occur in the future, where borrowers delay repayment in the hope of ‘credit amnesty’ whenever the economy worsens.

However, some say that the ‘relief effect’ of credit amnesty for vulnerable groups cannot be ignored. The credit amnesty policy can provide an opportunity for a fresh start for those who have been pushed out of institutional finance due to unavoidable circumstances. In fact, according to the Financial Services Commission, 98% of loan delinquents currently suffer from small debts of less than 2,000 million won. This means that the majority of those eligible for credit amnesty are financially vulnerable who find it difficult to escape the cycle of delinquency without help.

In particular, in the case of borrowers with delinquent payments due to the COVID-19 pandemic, which is a blind spot of this credit amnesty, most of them are small business owners, self-employed people, and vulnerable groups who have been harmed by social distancing. If they faithfully repay their unavoidable overdue loans, they will have a chance to make a full-fledged comeback. This credit amnesty is a hard-line measure by the government to completely dispel the shadow of the pandemic.