Government Speeds Up New Start Fund Agreement Process.. Reviewing Efficiency of Debt Adjustment Procedures

[Financial News] It was found that 6 out of 10 self-employed people who applied for debt adjustment on overdue bonds of less than 90 days through the New Start Fund were rejected by financial companies. In this case, the New Start Fund buys the relevant bonds and transfers them back to the financial company's debt adjustment agreement, which increases the interest burden on the self-employed in the process. To improve the speed of agreement signing for the New Start Fund, financial authorities have decided to streamline debt adjustment procedures and redesign the incentive structure of creditor financial institutions. They also plan to review measures to strengthen support for vulnerable borrowers, such as socially vulnerable groups, in intermediary debt adjustment supporting borrowers with less than 90 days of delinquency.
The Financial Services Commission announced on the 14th that it held a 'New Start Fund Agreement Institution Meeting' presided over by Secretary General Kwon Dae-young to discuss such plans.
This meeting was prepared as a follow-up to the president's directive to listen to on-site voices regarding personal and small business debt issues on the 4th and to enhance policy awareness, and as a place to discuss the expansion plan of the New Start Fund, one of the 'special debt adjustment packages' reflected in the supplementary budget with agreement institutions. 
Previously, the government allocated 700 billion won in the supplementary budget to the New Start Fund expansion plan, which includes expanding the support target and supporting debt adjustment for low-income delinquent borrowers. 
Specifically, for unsecured debts of low-income small business owners with total debts of less than 100 million won and median income of less than 60%, the principal reduction rate will be expanded from the previous 60-80% to 90%, and the installment repayment period will be extended from 10 years to 20 years. The support target of the New Start Fund was also expanded from the previous 'business operators from April 2020 to November 2024' to business operators until June this year. 
The Financial Services Commission requested active cooperation from agreement institutions, such as revising the New Start Fund agreement, to ensure that related procedures can proceed without a hitch at the meeting on this day. 
In this regard, the Korea Asset Management Corporation (KAMCO) emphasized that fundamentally, it is necessary to streamline debt adjustment procedures and redesign the incentive structure of creditor financial institutions to improve the speed of agreement signing for the New Start Fund. 
According to KAMCO, in the case of overdue bonds of more than 90 days, the New Start Fund directly purchases overdue bonds from financial companies and proceeds with principal reduction, while in the case of bonds of less than 90 days, the Credit Recovery Committee leads the voluntary debt adjustment agreement procedure of financial companies. In the case of intermediaries, interest reduction or extension of grace period and installment repayment period are decided without principal reduction, but there is a problem that the non-consent reply rate of financial companies is high.
The consent rate of agreement financial companies for intermediary debt adjustment target bonds is only 34.2%. By industry, as of June, the non-consent reply rate for intermediary debt adjustment by industry is highest in credit finance at 86.2%. It is followed by guarantee institutions at 85.7%, banks at 61.4%, savings banks at 60.5%, mutual finance at 20.8%, and insurance at 3.3%. 
If the consent rate does not exceed 50%, the New Start Fund purchases the relevant bonds at market price and then transfers them back to the agreement financial company to sign a debt adjustment agreement. This process can take more than 8 months, during which the debtor has to bear high loan interest. 
Director Kwon said, "The system improvement plan announced through the supplementary budget will be implemented as soon as possible so that debtors can receive benefits as quickly as possible," and "active cooperation from agreement institutions, such as revising the New Start Fund agreement, is necessary to ensure that related procedures can proceed without a hitch."
He continued, "Rather than viewing debt adjustment only from a short-term loss perspective, it is necessary to view it from the perspective of consumer protection and the recovery of delinquents," and "helping debtors break the vicious cycle of debt and recover and restart in a normal economy is the path to coexistence."



sjmary@fnnews.com Reporter Seo Hye-jin