South Korea expands welfare system to aid victims of illegal lending and financial crisis

South Korea is set to enhance its social safety net by incorporating financial crisis information into its existing welfare system. This move aims to proactively identify and support vulnerable individuals, particularly those facing hardship due to illegal private lending and other financial distress. The Ministry of Health and Welfare announced the "Plan to Strengthen the Discovery and Support of Households in Financial Crisis" following a meeting of the inter-ministerial crisis household discovery and support council.

The expanded system will integrate financial crisis data into the current welfare blind spot discovery mechanism. This existing system analyzes big data from 47 types of crisis information, such as utility disconnections, to identify high-risk households. The new plan will add data on individuals undergoing debt restructuring suspension from the Credit Counseling and Recovery Service, vulnerable debtors using microfinance services, and victims of illegal private lending reported to the Financial Supervisory Service.

To establish the legal basis for this data integration, the Ministry of Health and Welfare plans to enact an amendment to the Social Security Benefits Act. Prior to the legal changes, the ministry will proceed with collecting victim information with consent and initiate a nationwide survey of local governments next month. Furthermore, the channels through which financial institutions can refer individuals in need of welfare support to local governments will be broadened.

Currently, the Korea Policy Fund for the Poor and the Credit Counseling and Recovery Service identify and refer welfare-vulnerable individuals to local governments. Under the new plan, the Center for Victim Relief of Illegal Private Lending and the Korea Legal Aid Corporation will also be able to refer individuals requiring assistance. Upon referral, local "outreach health and welfare teams" will conduct consultations and on-site verifications before connecting individuals to appropriate welfare services.

This initiative stems from a directive by President Lee Jae-myung, who emphasized the need to prevent extreme situations arising from personal debt. "We must ensure that no one dies because of debt," he stated, highlighting the government's commitment to addressing the critical issue of financial hardship and preventing tragic outcomes.