President Lee says debt relief helps society, calls long-term collection practices 'unjust enrichment'

President Lee Jae Myung said Wednesday that financial institutions' harsh treatment of long-term delinquent debtors is itself a form of moral hazard.

Speaking at the Financial Services Commission's work report held at Cheong Wa Dae, Lee addressed the issue of debt collection on long-overdue loans, saying "financial institutions set their interest rates by factoring in the assumption that a certain number of borrowers will default. Writing off those debts is not a loss for them."

Lee said "for some reason, South Korea is harshly strict when it comes to forgiving debt — it is partly the result of a kind of propaganda and agitation." He added that while "moral hazard" is a convenient phrase, it is frequently invoked to argue that settling overdue debt would discourage people from repaying honestly, making the country "very reluctant" to pursue debt relief.

"What happens to a society if it refuses to do what needs to be done because of criticism or agitation?" he said, stressing that resolving long-term delinquent debt is standard practice in Western societies. "If someone cannot repay, they go bankrupt, receive a discharge and start over — that is better for society as a whole," he said.

Directing his remarks squarely at financial institutions, Lee said long-term delinquent debt has already been fully compensated for through interest pricing, and that aggressively collecting on top of that amounts to unjust enrichment. "They are chasing unjust gains," he said.

Lee said there must be no more cases of people dying or being cut off from society — unable to engage in economic activity — because of debts they cannot repay, causing losses to the entire community. He ordered FSC Chairman Lee Eok-won to introduce bold new measures and make the case for them publicly.

Chairman Lee said a representative example is the Sangnoksu program, noting that even heads of financial companies said they were unaware it existed when asked. "The management companies have a stake in this, but that is not a matter of moral hazard — it is a matter of attention," he said. "We are working to internalize the process of writing off long-term delinquent debt so it can happen within the system."