"Even High Earners Making 100 Million Won a Month Can Get Debt Relief?"... Saechulbal Fund Relief Criteria Revised

[Financial News] Financial authorities have tightened the debt relief standards for the Saechulbal Fund. Because even high-income borrowers with sufficient repayment capacity had been receiving debt reductions, sparking concerns over moral hazard, the relief rate will now vary by income level.
On the 25th, the Financial Services Commission (FSC) held a meeting with Korea Asset Management Corporation (KAMCO) to review the fund's operations and discuss the changes.
The Saechulbal Fund is a tailored debt adjustment program designed to ease the financial burden on self-employed people and small business owners who are struggling to repay loans after being hit by business restrictions and other impacts from COVID-19.
In December last year, the Board of Audit and Inspection (BAI) uncovered large-scale improper debt relief cases during its regular audit of KAMCO. A total of 1,944 people with repayment capacity received 84 billion won in debt reductions, and 385 debtors were found to have potentially hidden assets through cryptocurrency holdings, gifts, or unlisted stocks. The controversy intensified after it was revealed that some debtors who were still able to repay, including high-income earners making more than 100 million won a month, had also received principal reductions.
To prevent moral hazard, the FSC decided to differentiate principal reduction levels according to income and asset levels. Under the current Saechulbal Fund rules, principal reductions are set at 60% to 80% of the debt, depending on the debtor's repayment capacity. Critics have argued that the system is unreasonable because the minimum reduction starts at 60%, regardless of repayment ability.
The FSC lowered the minimum reduction rate from 60% to 30%, so that the higher the repayment capacity, the lower the reduction rate. Borrowers with a repayment capacity of 100% or less will be subject to the current standard, while those above that level will be eligible for only a 30% reduction in principal.
The authorities plan to respond strictly to fraudulent acts, such as applicants hiding cryptocurrency or unlisted stock holdings or transferring assets to family members just before applying, by canceling agreements or recovering debts. Since February, KAMCO has been operating an Asset Investigation Task Force to thoroughly examine such suspected cases.
Since the beginning of this year, cryptocurrency and unlisted stock holdings have also been included in asset reviews. Applicants are required to submit cryptocurrency balance certificates and records of unlisted stock holdings from HomeTax. In addition, starting in August, revisions to the Credit Information Use and Protection Act will allow government debt adjustment bodies, including the Saedoak Fund and the Saechulbal Fund, to obtain financial asset data in bulk when assessing a debtor's repayment capacity, enabling post-review verification as well.
The FSC explained that "this revision is not intended to reduce benefits for debtors who need help from the Saechulbal Fund, but rather to prevent unnecessary waste of resources so that we can provide more sufficient support to those who truly need it."

zoom@fnnews.com Lee Jumi Reporter