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Loan sharks prowl for fresh victims

Offers ‘too good to be true’ increase for cash-strapped
Aug 07,2009
It is yet another story in what seems to be an unending series of tales of desperate, cash-strapped people and private lenders trying to make bank. Yoo, a 40-something-year-old Korean living in Dangjin, South Chungcheong, who declined to reveal his first name, saw in June an ad on a local job listing leaflet that promoted “immediate lending service in a day regardless of credit history!”

Cash-strapped and unqualified to take out a bank loan, Yoo immediately called the number printed in the ad to borrow 5 million won ($4,084). The broker asked for a commission of 10 percent, and, once Yoo remitted it, asked him to send an additional 1 million won fee, saying he just found out that he could get up to 10 million won for Yoo. To Yoo, that was great news.

Once Yoo sent the extra million and asked for the loan, the broker kept charging more fees, saying suddenly that he could lend up to 30 million won. By the time Yoo realized he was being suckered, it was too late for him. When he pressed for a refund, the broker said: “Watch out what will happen to you.”

Such frauds are becoming increasingly rampant in Korea, where a growing number of desperate individuals are searching for quick cash in the often vain hope that they may get unusually lucky and avoid Yoo’s fate. It is illegal to charge a borrower additional fees other than loan interest and service fees charged by the lending company. The meaning of this is simple: All additional charges imposed by “loan brokers” are illegal.

Yet many brokers, connecting prospective borrowers with private lenders, are asking for fees worth up to 20 percent of the principal. And many desperate, or unwary, borrowers pay.

More than 4,075 consumer complaints were filed about private lenders in 2008, up from 3,421 in 2007, 3,227 in 2005 and 2,898 in 2004, according to the Financial Supervisory Service.

And beware of ads promoting “loans for the jobless and debt defaulters!” In many cases, the prospective borrowers are required to “sell” their personal identities, such as resident registration numbers, to loan sharks in exchange for a little cash.

The loan sharks often create several cell phone accounts with the purchased identities, using them to send mass spam text messages. If caught, the borrowers who sold their personal identities will face hefty fines for disseminating illegal spam.

That’s not all.

Some loan sharks buy a house with the personal identity bought from the borrowers and take out a home equity loan secured by the property. If they default, the original borrowers are left holding the bag.

“Like we disclose the whole process for a farm product from its place of origin to retail store shelves for consumers, we need to retrace the lending history of each private lender and screen out those who do not measure up to standards,” said Lee Jae-sun, director general of the Consumer Loan Finance Association, a local private lenders’ association.

By Kim Young-hoon, Jung Ha-won [hawon@joongang.co.kr]