Word: cards
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...personal bankruptcy. Newspapers have reported a rash of suicides, violent crime, kidnappings and prostitution attributed to overborrowing. In September, a deep-in-hock housewife leaped to her death from a ninth-floor apartment, taking her 13-year-old daughter with her. In August, two young women with heavy credit-card bills killed themselves by drinking a cocktail of alcohol and poison. "I often speak to debtors [who are] on the verge of suicide," says Seok Seung Oak, who runs an online counseling service for credit abusers. "The disgrace they feel is enormous...
...Credit cards became widely available to Koreans only four years ago. Economic policymakers, trying to reduce their export-driven economy's dependence on the U.S., implemented measures that encouraged banks and card companies to increase lending to consumers. Anyone who ran up expenditures totaling more than 10% of his annual income on credit cards was granted a 20% income-tax deduction, and long-standing restrictions on cash advances were abolished. The situation was a bonanza for card companies and banks. Miniskirted girls peddled cards on street corners, offering free plush toys and kitchen knives to new applicants...
...Then came the hangover. Household savings rates, as high as 23% of disposable annual income in 1998, plummeted to less than 10% last year while household debt, which includes personal loans and credit cards, soared by 30% last year to $365 billion. South Korea lapsed into recession in the first half of 2003, which made it harder for consumers to pay their bills on time. Unlike most credit-card markets, Korean lenders do not offer revolving credit, which allows borrowers to pay off their debt over months or even years. Instead, balances must usually be paid in full after just...
...Delinquencies are also soaring because banks and card companies frequently fail to properly assess credit risk, offering cards to just about anyone who cares to fill out an application. Privacy laws make it difficult for companies to share credit information on individuals in South Korea. Access to information is improving, but it's still not possible to verify applicants' incomes. A Seoul cosmetics salesman (who requested anonymity) applied for most of his five cards on street corners, and he says the only check was a phone call to him at his office. He's now $42,000 in debt. "Koreans...
...borrow, the government is now in effect making it possible for some to walk away from their obligations. The Korea Asset Management Corporation (KAMCO), a public agency set up after the Asian financial crisis to dispose of bad corporate debt, recently assumed $5.48 billion in delinquent accounts from shaky card companies. KAMCO plans to write off up to 30% of the principal, extend the payment periods to a maximum of eight years and redeem the credit records of debtors. Some card companies have started their own debt-forgiveness programs; these have the unintended consequence of creating an incentive for borrowers...