Mr. A, who qualifies for the New Leap Fund that writes off long-delinquent claims yet has lived as a credit delinquent for more than 20 years, eats lunch alone on the 4th in a long-stay inn room in Daegu Metropolitan City. Senior Reporter Jung Ji-yoon

On the afternoon of the 4th, in a room at an inn in Dalseo-gu, Daegu. The small room of about 13㎡ (4 pyeong) with a monthly rent of 300,000 won held mold that had blackened the walls and a small cathode-ray tube TV showing the marks of time. It is the dwelling of Mr. A (55), who became a credit delinquent after incurring 10.3 million won in debt during the “credit card crisis” some 20 years ago.

Mr. A became a credit delinquent in the early 2000s amid the “credit card crisis.” His 10.3 million won debt was transferred to ‘Sangnoksoo First Securitization Specialty Limited Company’ (hereinafter, Sangnoksoo), a kind of private bad bank (a company that handles non-performing loans) established in 2003 during the government and card issuers’ efforts to manage the fallout.

Working as a day laborer with irregular income, Mr. A could not repay the debt. Interest approaching 20% per annum accrued on the debt that had been transferred to Sangnoksoo. The card debt, which had been a little over 10 million won, has now ballooned to about 44 million won. Including amounts borrowed elsewhere, the total he had to repay neared 100 million won.

Yet Mr. A did not simply give up. To rebuild his life, he attended night school and passed a high-school equivalency exam in 2011. He contacted creditors to explain his circumstances, and some either wrote off amounts or transferred their claims to the Korea Asset Management Corporation (KAMCO) so that he could receive debt adjustment. He faithfully repaid the reduced debt (principal of 4.62 million won) for more than two years.

However, Sangnoksoo did not let Mr. A go. He was in despair, saying, “I told the authorities that I would repay if they adjusted the debt because I had the will to pay, and I also told Sangnoksoo, but they said no.”

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Mr. B (52), a basic livelihood recipient, also became a credit delinquent during the credit card crisis. In the early 2000s, while selling antiques near Cheonggyecheon in Seoul, he covered operating funds by “rolling over” credit cards and ended up with 23 million won in debt. As his debt was transferred to Sangnoksoo, massive interest accrued over more than 20 years and the total exceeded 100 million won.

Carrying the label of ‘credit delinquent,’ Mr. B lived for more than a decade as a day laborer, earning just enough each day to get by, in a small rooming house in Seoul.

Now working in garment-related work, Mr. B heard last year about a debt forgiveness initiative by the Lee Jae Myung government and began to hope he could make a comeback. But he felt frustrated upon learning that claims held by Sangnoksoo are not included in the New Leap Fund.

He said, “I wanted to settle my long-standing debts and leave the recipient rolls so I could run a small sewing shop of my own,” adding, “I looked into it with hope, but I was told Sangnoksoo-held claims are not eligible for the New Leap Fund, which was discouraging. If they say it is not possible to the end, I will have to look for what options might exist.”

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If the aim is to help long-term debtors trapped in debt make an economic comeback, the debts of Mr. A and Mr. B should also have been included in the New Leap Fund promoted by the Lee Jae Myung government. They meet the conditions of principal of 50 million won or less and delinquency of seven years or more. They also clearly had the will to restart, which is the policy’s foremost goal.

However, the reason they could not receive “debt forgiveness” is that financial companies hid behind a special purpose company called “Sangnoksoo.” Due to Sangnoksoo’s complex decision-making structure and because participation in the New Leap Fund agreement is voluntary, long-delinquent claims held by Sangnoksoo were not being included in the New Leap Fund.

The articles of association of Sangnoksoo stipulate, ‘Resolutions of the general meeting of members require the consent of all members.’ If even one of the nine shareholders opposes, the claims cannot be transferred.

Even when the Park Geun-hye administration set up a bad bank called the ‘National Happiness Fund’ in 2013 to write off debt as a matter of policy, Sangnoksoo-held claims were excluded from ‘debt forgiveness’ because shareholders objected. These financial firms held long-delinquent claims that arose from 90,000 people during the credit card crisis 23 years ago, amounting to about 700 billion won, and they received roughly 42 billion won in dividends over the past five years.

Financial authorities are also seeking to acquire New Leap Fund-eligible claims held by Sangnoksoo in order to eliminate blind spots in the policy, but are encountering difficulties. Participation in the New Leap Fund is, at its core, left to the discretion of financial companies. While a private company like Sangnoksoo can be persuaded to join the New Leap Fund agreement, the government has no means to compel it.

What fuels controversy is that most of the member firms participating as shareholders in Sangnoksoo are, individually, signatories to the New Leap Fund agreement.

According to the shareholder roster of Sangnoksoo, most are regulated financial institutions: Shinhan Card (30%), Hana Bank (10%), IBK Industrial Bank of Korea (10%), Woori Card (10%), KB Kookmin Bank (5.3%), and KB Kookmin Card (4.7%), with the remaining 30% split evenly among three companies, including lenders, at 10% each.

For this reason, there is criticism that those who have recently put ‘inclusive finance’ at the forefront are being two-faced by holding long-delinquent claims through an invested company and receiving dividends.

Attorney Kim Yong-dae of Hanbyul LLC, who has represented numerous suits against Sangnoksoo, said on the 11th, “Sangnoksoo is a purely profit-seeking private company that specializes in debt collection to maximize returns,” adding, “The intensity of its collections is among the highest, even compared with lending companies.” He added, “Unless a debtor is truly very old or has no assets, it seems basically difficult to obtain an adjustment before the debtor dies.”

A person in the non-performing loan industry with experience helping adjust the debts of Sangnoksoo borrowers said, “After 20 years, these claims are highly likely to reach the statute of limitations, but because many debtors lack financial knowledge, they extended the limitation by paying even small amounts,” adding, “Claims delinquent for more than 20 years should now be written off.”

Another non-performing loan industry official pointed out, “Banks and card companies pretended to participate actively in inclusive finance on the surface while, behind the scenes, hiding the existence of Sangnoksoo and their holding of the target claims.”

Sangnoksoo shareholders, who were asked by KAMCO to sell claims eligible for the New Leap Fund, are currently conducting internal reviews, but their stances reportedly vary by company.

An official at Bank A said, “We agree with the intent of transferring the claims and with the policy need,” adding, “We are reviewing consent to the transfer in accordance with internal procedures.”

By contrast, Bank B stated, “Because specific information such as the size of the claims or the price is not included, this is not a situation in which we can make an immediate decision.” A representative of Card Company C said, “We agree with the policy aim of supporting the recovery of long-delinquent borrowers,” adding, “However, in the case of Sangnoksoo, additional confirmation such as the size of the target assets is needed, so we have requested review materials.”