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Scammers target young, broke

Payroll loan cons prey on those struggling to make ends meet
Dec 04,2018
Cash-strapped young people lured by big payoffs through risky ventures are falling victim to payroll-based loan scams, according to an investigation by the JoongAng Monthly.

One unemployed youth surnamed Kim lost a fortune after investing in the digital currency Ethereum last December when the token reached 700,000 won ($630), up from its initial price of 250,000 won.

Kim’s interest in cryptocurrency was piqued after he learned about a young man his age who made 28 billion won after putting in only 80,000 won into bitcoin early in the token’s history.

Believing his chances at striking gold would diminish the longer he waited, Kim borrowed 30 million won from various loan sharks using the long-term deposit on his family’s apartment as collateral.

He did not tell his mother about the loans.

By mid-January, it looked like Kim’s bet had paid off. Ethereum reached a peak of 1.48 million won, which would yield him profit worth multiple times his initial investment.

But his fortunes soured only a few days later. After the Minister of Justice announced on Jan. 11 that the government was preparing legislation to shutter all domestic cryptocurrency exchanges, the market fell to a downward spiral.

Though the ministry eventually softened its stance somewhat following fierce backlash from individual investors, the damage had already been done.

Ethereum dropped to 1.12 million won by late January, and by March, it was worth 600,000 million won. Kim now found himself unable to pay back the interest on his loans, which amounted to a million won every month.

A seemingly good-intentioned acquaintance reached out to Kim in this state of devastation. A temporary staffing company executive he had known for some time offered to put him on his company payroll to allow him to meet the criteria necessary to obtain a bank loan.

“His offer looked promising at the time, since I was blacklisted for having a bad credit rating because I couldn’t pay back my earlier debts,” Kim said. “He said I could borrow up to 100 million won through this method.”

Kim added that he even thought of opening up a shop with this money.

But after borrowing 60 million won in Kim’s name in August, the executive suddenly disappeared. Kim said he didn’t think this was possible, as the businessman was well known among local temporary staffing companies.

Kim found it difficult to accept the reality that he was fleeced, repeating that the company and the man who had duped him was “just facing fleeting difficulties of their own.” Kim was left responsible for the payments on the loan as it was in his name.

What Kim was lured into is a common scam known as an “employment loan,” in which brokers falsify employment and salary certifications for their victims to trick financial companies into granting these people loans.

In return, brokers often demand a large share of what is borrowed, or in Kim’s case, run off with the entire loan.

JoongAng Monthly was also able to get in contact with a former worker at the company that scammed Kim with the latter’s help.

The employee, surnamed Moon, said he did paperwork for the company and is now preparing a lawsuit against the company owner along with victims like Kim.

“Looting the pockets of credit-deprived people is just too much,” said Moon, visibly incensed.

Other than Kim, the company had 10 clients on its roster. Three were in their 20s, just like Kim. First, the company would obtain a certified copy of clients’ resident registry and a bank account in their names.

With these documents, the company set up mobile phone accounts and credit cards. They made regular payments with these cards to raise their clients’ credit scores. Money used for these payments were taken from loans borrowed in other clients’ names.

Once the bank granted a loan, the company would typically take around 30 percent - a low rate compared to other similar scammers, according to Moon.

According to the Financial Supervisory Service (FSS), the country’s top financial watchdog, some operators demand up to 80 percent of the loan from their clients.

After a crackdown on such scams in 2015, the FSS found 256 advertisements for employment fraud scams - the second-most common type of scam after illegal sales of fake deposit accounts.

Another victim of the employment loan scam - a 23-year-old surnamed Choi - wanted to buy a used car on the internet. But he had no money, no job and there was no way a bank would lend him anything.

While surfing the web, Choi came across an advertisement from a company that offered to sell young people like him foreign-brand cars through loans obtained after a false employment registration.

He visited the office of the company, which claimed they had a car from Choi’s favorite brand. The company dealer said all he had to do was sign a fake employment contract.

With this, Choi got 10 million won in a bank loan, and an additional 15 million from five other lenders. But once he went to the company with the money, they didn’t have the car he wanted. Instead they sold him another used car that barely ran and offered to exchange it for the car he wanted at a later date.

Choi waited and waited, but he heard nothing back from the car dealership for days on end. Suspicious of the transaction, he looked up the price of the car he had been given, only to find out it only cost 18 million as a used model - much less than the money he had given the company. Shocked, he called the company, but they only scoffed at his foolishness. When he told them he would report them to police, they told him that he, too, would be liable for punishment for taking part in document falsification.

Choi was saddled with 25 million won in debt and a nearly useless old car.

Many resort to these scams to pay off debts caused by high living costs and credit card overuse. One young breadwinner from Gwangju surnamed Yoo fell into this category.

After marrying and having a child at a young age, Yoo was responsible for providing for his wife and child with a factory job that paid only 1.7 million won a month. He took out multiple loans to pay rent and childcare costs, but he had to pay a monthly interest of 1.5 million a month. With mounting debt, Yoo turned to this employment scheme last March as a last resort.

One company told him that they would pay off his entire debt of around 54 million won if he agreed to pay them off after his credit score rose, and he was able to obtain a loan from a major bank. A day after he agreed to the offer, company employees came down to Gwangju from Seoul with a loan contract. Yoo gave the employees a copy of his household registry and bank account.

But then, an employee handed him another document which he hadn’t been told about beforehand. It was an agreement to pay the company a commission for the transaction. The commission was 16 percent of his loan, or 8.57 million won. Despite the fact the fee was higher than he could afford, Yoo said he had no choice but to sign the agreement because he was surrounded by their scammers inside their van.

But things did not turn out the way Yoon expected. The bank only lent him 33.4 million won, and he had to borrow an additional 32 million won - which included the commission to the company - from other loan sharks. Eventually, he was saddled with debt payments of 2 million won a month - higher than what he started with.

Park Su-min, head of the Gwangju branch of the Youth Money Habit Training Center, a civic organization designed to help struggling young people like Yoo, said there were not enough public institutions that help young people with living expenses. Korea Student Aid Foundation is practically the only entity, Park said, and those who can’t even get their help are easily exposed to scams.

Civic organizations aware of the seriousness of such scams are working to combat them on behalf of credit-deprived youths. Nine of these organizations formed an alliance this April called the “network to solve the youth debt crisis” to demand stronger enforcement of illegal financial schemes from the FSS.

A recent ban on keywords related to employment loans on major portal websites like Naver and the disappearance of advertisements related to the scams are its major achievements.

Park said it is a misconception that young people fall prey to financial scams because of their irresponsible spending.

“Nine out of 10 young people who take out high-interest loans from loan sharks do so to pay off their debts. But attempting to pay these off no matter what creates even more problems for them,” Park said. “Someone has to step up and tell them not to pay when they can’t. It is better to declare personal bankruptcy. But public institutions can’t say this. That’s why it is up to civic organizations.”

BY MUN SANG-DEOK [shim.kyuseok@joongang.co.kr]