Questions/Answers

1. Serious economic risk of household debt in South Korea As of 2017, Korea’s total household debt balance reached a record high of KRW 1,400 trillion. The issue of household debt not only has economic implications for consumers, but also has a significant impact on social stability. The heavy burden of household debt has made the lives of citizens harder and is the factor with the largest influence on the suicide rate in Korea. It has been found that one out of five suicides are committed due to economic hardship. Unfortunately, however, low-income families struggle with a lack of access to financial information, and few banks are willing to provide the financial services that low-income families struggling with debt need to strengthen their financial capability and take control of their debt repayment responsibilities. 2. Need to relieve the burden of those struggling with heavy debt Credit recovery through debt adjustment, financial consultations, and housing and employment assistance can help those suffering under crushing debt regain hope. It is important to break the vicious cycle of repaying debt with more debt. In this sense, the issue of household debt needs to be approached from a welfare-based perspective. 3. Seoul’s effort to relieve the suffering of those in debt Established in July 2013, the Seoul Financial Welfare Counseling Center (SFWCC) has offered 71,000 sessions of financial counseling to 22,300 citizens struggling with substantial household debt. Among them, 4,000 citizens, accounting for a combined KRW 950 billion in household debt, managed to become debt-free with the center’s help. In addition to financial counseling, the center also provided housing and job-related counseling to help citizens get back on their feet. In this way, the SFWCC is a program that relieves the suffering of those burdened with debt and helps them regain lost hope.

1. Escape from the trap of household debt through welfare policy The SFWCC provides assistance to citizens who have fallen into the trap of household debt through bankruptcy exemptions and credit recovery assistance and offers welfare services, including housing and employment services, with the aim of helping all citizens live their lives with dignity (Article 34, Paragraph 1 of the Constitution of the Republic of Korea). 2. Breaking of the vicious cycle of poverty and realization of economic democratization The goal of the SFWCC is to build a society where those who have become mired in persistent debt can receive the support they need to break the vicious cycle in which they have become trapped, as long as they are willing to put in the necessary effort. In the society envisioned by the center, there is no social stigma associated with economic failure and social systems are in place to ensure that everyone has the opportunity to stand up on their own two feet once again.

The government has been trying to resolve the massive household debt issue caused by financial policy that has led debtors to pay off one loan by taking out another. Under such policy, low-income families that struggle to pay their living and housing costs eventually became financially subordinate to financial companies, causing them to be and feel marginalized. Financial policy is thus not a fundamental solution to the soaring household debt issue. It was against this backdrop that the SFWCC was established. It began with an innovative idea: the fundamental solution to the household debt problem is welfare. The SFWCC now has offices in the buildings of 14 administrative agencies, including the district offices of Seoul and the Ministry of Employment and Labor, ensuring that citizens have easy access to its services. In addition, via the center’s website, citizens can apply for counseling services and make suggestions. The SFWCC works closely with government agencies responsible for housing, employment, medical services, and welfare as well as with private organizations such as community welfare and rehabilitation centers in an effort to help citizens in financial crisis.

1. Elimination of poverty The SFWCC restores the hope of citizens who have given up on life because of economic problems and provides guidance and counseling to help them alleviate debt and poverty. 2. Job creation and economic growth Citizens whose bank accounts have been frozen due to financial difficulties are at greater risk of being exploited by employers. The SFWCC works to prevent employers from exploiting such workers by providing bankruptcy exemptions and legal support, and helps people find decent jobs that pay fair wages. 3. Reduction of social inequality The SFWCC offers counseling and welfare services designed to help people in dire economic straits break the vicious cycle of poverty, rebuild their lives, and become financially independent.

1. Prevention of growth of household debt The SFWCC focuses on preventing household debt from growing out of control by offering citizens training and guidance on how to manage income and expenses, understand cash flow, and save money. The center also provides social welfare workers with financial education understand that household debt causes not only personal suffering but also social structure problems. 2. Management of household debt Based on a foundation of mutual trust, the SFWCC cooperates closely with the Seoul Bankruptcy Court and Korea Legal Aid Corporation to support public debt restructuring. The Seoul Bankruptcy Court operates a panel of judges who deal with bankruptcy cases filed by citizens receiving counseling at the center in a prompt and efficient manner.(Fast-track) 3. Combination with welfare services The debt exemptions and public welfare services (housing, jobs, etc.) that the SFWCC provides Seoul citizens serve as the foundation for their economic recovery. The SFWCC also works closely with the public and private sectors, including the welfare departments of nine district offices, Korea Land and Housing Corporation, Youth Money Habit Training Centers, Rehabilitation Centers, and Welfare Centers, which are located in each district and provide welfare services tailored to the needs of citizens.

1. No More Deaths for Debt This campaign aims to raise awareness of the facts that the individual is not solely responsible for his or her debt and that one does not need to remain in debt for one’s entire life. This campaign provides easy access to public services for citizens who are struggling under crushing debt and do not know where to turn for help. Over 4.5 years, some 22,300 citizens received counseling services (71,000 cases) through this campaign, many of whom are now beginning to rebuild their lives and restore their self-esteem. 2. 4,000 citizens free from household debt In cooperation with the Seoul Bankruptcy Court, the SFWCC has released 4,000 citizens from their household debt, valued at a total of about KRW 950 billion. 3. Welfare services that help people get back on their feet The SFWCC offers welfare services that help those who have been released from their debt get back on their feet, including legal services, housing assistance, employment and medical services (total of 2,200 cases). It has also arranged for 140 citizens to meet with lawyers capable of helping them escape from the credit collection. 4. Provision of the SFWCC’s services free of charge

1.The question that inspired the policy design of the SFWCC Why does a debtor have to bear the burdens caused by insolvency alone? Is it right that the creditor, who lent the money without considering the debtor’s ability to repay, is not required to bear any responsibility at all? What is more important: social acceptance and self-esteem or the value of the money to be repaid? 2. Welfare is the solution to the household debt issue The only solution offered to citizens by financial companies used to be simply taking out another loan to pay off the former. To help citizens escape this debt trap, appropriate bankruptcy systems are needed. However, financial companies are strongly opposed to this idea. Even when debt is written off under the bankruptcy system, material support should be provided to help the debtor get back and stay on their feet, such as employment and housing support. 3. Public-Private governance network To prevent those whose debt has been forgiven from falling back into the debt trap again, the center uses its network of public and private sector organizations to provide welfare services tailored to the needs of each individual. This shows innovation in public administration.

The U.S. Bankruptcy Code requires that credit counseling be provided to debtors by a non-profit private organization before and after the bankruptcy procedure begins. The Consumer Credit Counseling Service of the National Foundation for Credit Counseling is one such organization. It contacts creditors and sometimes negotiates repayment terms on behalf of debtors. However, it is not allowed to provide legal advice in relation to the bankruptcy application procedure. The UK has Citizens Advice, which is a network of 316 independent charities. Citizens Advice provides free, confidential, and independent advice to help people overcome a wide range of problems, including debt, welfare, housing, and immigration issues, problems with care facilities, and consumer complaints. It also arranges financial services for those with low credit ratings. The SFWCC, however, is unique in that, as a public organization, it helps debtors recover after their debt has been forgiven, in cooperation with the court and the Korea Legal Aid Corporation. In addition, it is building a public network that will enable it to provide welfare services in addition to its debt recovery assistance.

1. Material resources The SFWCC is made up of a central headquarters and 13 regional centers. The regional centers, each staffed with two financial welfare counselors, are located in the buildings of nine district offices, two labor and employment offices, and the Korea Land & Housing Corporation. Since they are located in the buildings of these administrative agencies, they serve to strengthen public trust and are easily accessible to citizens. In addition, the centers freely issue to citizens the official documents they need to submit with their bankruptcy exemption or welfare benefit applications. The counseling spaces and facilities are provided by the administrative agencies. 2. Financial resources The SFWCC receives all of its budget from Seoul Metropolitan Government, and its budget has been increasing in parallel with the overall welfare budget of the government. 3. Human resources The 28 financial welfare counselors include individuals with expertise and experience in the fields of finance, welfare, and law. Before being sent to the centers, they receive basic counseling training and obtain additional qualifications necessary for their counseling work. Since these experts are regular staff of this public institution, citizens can count on them to provide stable and reliable service.

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The services of the SFWCC have spread to many cities across the country. So far, financial counseling centers have been established in Seongnam, Gwangju, and Jeonju, where they provide sound financial advice to debtors. In addition, the central government unveiled a set of measures on October 24, 2017. These measures are aimed at curbing the country’s massive household debt and include a plan for increasing the number of financial welfare counseling centers providing financial counseling, debt adjustment, and welfare services. This will be of great help in spreading Seoul’s financial welfare counseling project to many other cities in Korea.

1. High level of consumer debt caused by aggressive financial capital companies and central government’s inappropriate policy Since the financial crisis of 1997, the Korean government has facilitated the sale of non-performing loans as part of its restructuring effort. As a result, finance companies turned their eyes toward consumer lending markets. At the same time, the neoliberalist, central government debt-driven growth strategy accelerated the formation of monopolies, led to the collapse of the middle class in Korea, and prevented the poor from getting back on their feet, thus widening the gap between the rich and the poor. Later, the government eased the regulations against real estate speculation under the pretext of market revitalization and made it easier for people to take out mortgages so that they could pay their increasing housing expenses rather than creating new housing policy. Furthermore, when the government eased the regulations on laying off workers, a massive number of workers were let go by their employers. As these workers attempted to start their own businesses, the government began offering more loans for the self-employed, plunging them even further into debt. For this reason, household debt in Korea surged from KRW 474 trillion in 2007 to KRW 1,419 trillion in 2017. 2. Consistent hard work and determination of the SFWCC The SFWCC was established to give people new hope and self-esteem at a time when countless citizens had fallen into the debt trap and were struggling desperately to stay afloat. The center has thus been providing public services designed to help those struggling with debt get back on their feet and continue engaging in normal economic activities, and it will continue providing such services as long as financial companies keep encroaching on the market and the gap between the rich and poor keeps widening.

1. Legal and institutional basis Article 34, Paragraph 1 (All citizens shall be entitled to a life worthy of human beings); Article 34, Paragraph 2 (The State shall have the duty to endeavor to promote social security and welfare); Article 34, Paragraph 5 (Citizens who are incapable of earning a livelihood due to a physical disability, disease, old age, or other reasons shall be protected by the State under the conditions as prescribed by Act.); and Article 119, Paragraph 2 (The State may regulate and coordinate economic affairs in order to maintain the balanced growth and stability of the national economy, to ensure proper distribution of income, to prevent the domination of the market and the abuse of economic power and to democratize the economy through harmony among the economic agents) of the Constitution of the Republic of Korea constitute the legal basis for the policies pursued by the SFWCC. Also, the municipal ordinance on financial welfare counseling enacted in April 2015 prescribes the purpose and tasks of the SFWCC. Therefore, regardless of any political pressure that is applied, the SFWCC will remain sustainable. 2. Structural basis The SFWCC employs 28 financial welfare counseling officers and five administrative assistants. The head of the center was made a contract position to ensure the independence and flexibility of the center’s operation, but the rest of the workers (32) are regular workers of the Seoul Welfare Foundation. The Seoul Welfare Foundation hired 28 financial welfare counselors under the supervision of Seoul Metropolitan Government and Seoul City Council to ensure policy sustainability and carry out the tasks of the center. In this way, the sustainability of the SFWCC is supported by an organizational structure based on the regular employment system.

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Two official assessments have been conducted: the 2017 Citizen Satisfaction Survey of Seoul City-funded Institutes and the Business Assessment of Seoul City-funded Institutes. 1. 2017 Citizen Satisfaction Survey of Seoul City-funded Institutes Seoul City conducted a survey targeting those over 20 years old who had received services from the SFWCC in the past year. The survey was carried out in the form of individual interviews. 2. Business Assessment of Seoul City-funded Institutes This assessment was carried out based on the management assessment report and on-site inspection conducted of each of the 15 city-funded institutes every year based on Article 28 of the Act on the Operation of Local Government Funded Institutions.

1. 2017 Citizen Satisfaction Survey of Seoul City-funded Institutes: 93.7 points out of 100 The services of the SFWCC received a score of 93.7 points out of 100, which is above the average of Seoul City (88.3 points). By survey item, client service received 96.8 points; material support, 90.7 points; service results, 93.9 points; and communication, 92.9 points. 2. Business Assessment of Seoul City-funded Institutes: 14.38 points out of 15 The projects of the SFWCC received a score of 14.38 points out of 15. By assessment item, “Plan” (appropriateness of business plan) received 2.19 points out of 2.5; “Do” (sincerity of action), 2.5 points out of 2.5; “Check” (project effectiveness), 7.5 points out of 7.5; and “Act” (appropriateness of feedback), 2.19 points out of 2.5. The SFWCC received positive assessments on its financial welfare counseling and welfare provision services, showing that it has provided tangible benefits for citizens.

1. Indexes used for the 2017 Citizen Satisfaction Survey of Seoul City-funded Institutes Client service (responsiveness, expertise, and support) Material support (management, convenience, and ease of access) Service results (benefits, sustainability, and promotion of public interest) Communication (determination to communicate, basis for communication, and effectiveness of communication) 2. Indexes used for the Business Assessment of Seoul City-funded Institutes Plan (appropriateness of business plan – non-metrical) Do (sincerity of action – non-metrical) Check (project effectiveness – metrical), Act (appropriateness of feedback – non-metrical)

1. Close cooperation with the Court and the Korea Legal Aid Corporation(KLAC) The court operates two panels of judges devoted to bankruptcy exemption cases filed through the SFWCC. As a public institution, the KL AC provides free legal services to low-income families. Working in close cooperation with the SFWCC, it handles more than 90 cases a month. The counselors of the SFWCC have been offering financial education for bankrupt debtors selected by the court since 2017. 2. Supportive partners in the provision of welfare services: district offices of Seoul, Korea Land and Housing Corporation(LH), and Ministry of Employment and Labor Nine offices of the SFWCC are located in buildings of some of Seoul’s district offices, one in the regional office of the LH, and two in the office of the Ministry of Employment and Labor. When a citizen visits the Ministry of Employment and Labor to ask for job-seeking assistance after his or her bank account has been frozen, the Ministry refers the citizen to the SFWCC office in the same building. After resolving his or her debt issues with the assistance of the SFWCC, the citizen can then get some help finding a job at the same place. 3. Cooperation with private organizations such as community welfare centers, rehabilitation centers, Youth Money Habit Training Centers(YMHTC) : an essential factor of the successful operation of the SFWCC The SFWCC conducts PR activities at community welfare centers, where low-income families go to get help, while also offering financial education for social welfare service providers. The center seeks out vulnerable citizens through these organizations and provides them with the public services they need. The YMHTC target youth and young adults who the SFWCC finds difficult to reach and helps them form better money management habits and learn more about finance.

Establishing a good rapport with the citizens The SFWCC is helping citizens recover from crushing household debt. In some sense, however, the center also receives assistance from citizens from time to time. Although some people recover their hope for the future with the help of the center, there are many who fail to solve their problems, despite the many efforts of the center’s counselors. As the counselors develop a close rapport with each of their clients, they sometimes become discouraged when their best efforts fail. At times such as these, citizens often comfort them and share their pain and sadness with them. For many years, public institutes believed that their only mission was to help and educate people in financial hardship. In its early years, the SFWCC took the same approach. After gaining more experience, however, the center realized that it needs to forge close relationships with citizens instead of providing help and education. This is one of the most important lessons that the SFWCC has learned during its operation.