by Koh Han-sunGiving credit card firms a run for the money
Not long ago Korea's credit card companies were aggressively expanding, adding new workers to solicit customers from what seemed a bottomless barrel of consumers willing to go into debt. But times have changed. Those same companies are now recruiting repo men as they struggle to keep from being completely swamped by the recent tides of delinquent accounts.
Samsung Card, Korea's largest credit card company, recently transferred about 250 persons from its sales department to collections. Earlier this year Kookmin Credit Card Co. last month added 3,000 persons to go after customers in arrears, and Korea Exchange Bank Credit Service Co. has beefed up its staff pursuing bad debts.
In the sometimes unsavory task of wheeling in scofflaws, credit card companies have encountered challenges that go beyond the unanswered telephone call. Debt delinquents have become savvy enough to search for legal loopholes to worm out of the clutches of their over due loans.
In one case, an executive at a major credit card company, who asked not to be identified for this article, received complaints that a bar in Seoul refused to accept his company's card. The reason The bar owner himself had overdue card debt. Payments by customers using the credit card on which he was past due would automatically go to the credit card company. When the card company told the bar's proprietor he was being reported to the National Tax Service, he put all his property under his wife's name, which made him on paper indigent.
"What bothers us are people who are determined to get away with their arrears, although they have the means to pay," another executive at the card company said.
In the not too distant past, Koreans unable to pay their debts lived with constant harassment, if not in mortal fear. But today, ducking under the umbrella of laws that ban threats of violence and abusive language when collecting debts, many delinquents fend off bill collectors by presenting them with the prospect of having to prove that they did not hound the debtor or rough him up. The law was originally intended to protect people from loan sharks or illegal private lenders that offer cash at usurious rates and often do resort to violence when the client does not pay up.
Often this reverse intimidation works with the new convoy of untrained collectors pushed into these dark seas. The most common practice is to provoke card company employees into hurling abusive language at the debtor, a card company representative said. For instance, a debt delinquent would shower bad language on collectors over the phone and record any angry response. Then come the threats to give the recording to the Financial Supervisory Service, which oversees credit card firms, and the Consumer Protection Board unless the card issuer stops pressing for debt repayment. Women collectors, a representative of one credit card firm said, tend to be more of a target of abuse.
It seems no one was prepared for Korea's rocky introduction to a consumer-driven economy. South Koreans, in general, have displayed Confucian thrift in financial matters. But as interest rates fell and banks looked elsewhere for customers after the 1998 financial crisis weakened the conglomerates, heretofore the banks' largest customers, consumer spending based on credit took off. Whereas few Koreans had a credit card in 1995, last year there were on average four cards for each user. Koreans used plastic for 443 trillion won of purchases and cash advances in 2001, 300 percent higher than the amount in 1998.
Another problem is an infrastructure nearly devoid of the networks needed to keep track of individual consumer credit histories. The credit-unworthy often go from bank to bank, concealing their debts. Few employees at financial institutions are trained to analyze customer information. And the court system is not geared to small claims. In short, considerable investment is still needed to build the expertise required to execute an economy in which the consumer plays a dominant role.
As rudimentary as it may seem, having to train bill collectors to stay calm even when they are muddied with sordid language denotes a change in the environment. One card company has turned the tables, recording telephone conversations with debtors to use as evidence if questions arise as to whether the delinquent provoked the money collector.
Consumer protection laws offer a number of crevices where delinquents attempt to hide. One major card company received a call from the father of a man in his 20s, who said he would pay his son's 3 million won in overdue debts. Later, when the company called the father to set up a payment schedule, he accused the card company of violating the law, which bars credit card companies from asking a person's kin to pay his debt. But in this case the card company was on the right side of the law, since it also stipulates that if a relative promises to pay the debt the company can pursue the matter.
Despite making a major investment in collecting overdue debt, card companies are falling short of their goal to bring delinquencies under control. The in-arrears rate for bank credit card debt past due for one day stood at 16 percent as of the end of April, virtually the same as for March, according to the Financial Supervisory Service. Credit card debt past due for more than a month reached 12.6 percent in April, compared with 12 percent in the previous month.
People with debts of more than 300,000 won past due for more than three months are classified as credit delinquents, which bars them from taking out further loans. The number of credit delinquents reached more than 3 million for the first time in April.
Card companies are implementing programs to prevent their customers from falling behind on their payments. For example, Samsung Card has developed a credit-risk early warning system to help customers restore their credit rating and encourage them not to delay payments.