Financial authorities on Monday started to take preliminary applications for the “National Happiness Fund” recently set up to rescue individual credit defaulters.

While the preliminary application process will continue until April 30, the authorities will screen applicants between May and October, said the Financial Services Commission.

Eligible applicants should be in arrears for at least 180 weekdays and their debt should not exceed 100 million won ($88,500).

Debtors are allowed to submit applications via the website at www.happyfund.or.kr or nationwide branches of the Korea Asset Management Corp., KB Kookmin Bank and Nonghyup Bank.

On the first day, thousands of heavy debtors, most of them regarded as credit delinquents, formed long queues at the teller desks of the state-run KAMCO, the official operator of the National Happiness Fund.

The credit card industry, which has seen fierce competition to attract cardholders, and private moneylenders have produced a growing number of credit defaulters over the past decade.

Borrowers who fail to pay back their debt within 90 weekdays from the due date are registered as credit delinquents.

Under the Park Geun-hye administration’s initiative to lessen the debt burden of the low- and middle-income brackets, eligible applicants will see their debt slashed by up to 50 percent and enjoy lower interest rates on the remaining loans.

While some critics expressed alarm at the possibility of the fund creating moral hazard, FSC chairman Shin Je-yoon stressed that the fund was not a cure-all.

“It must lead to regaining credit since the fund cannot resolve every single problem,” Shin said during his speech at the KAMCO headquarters in southern Seoul.

The chief financial regulator added that a precondition of the fund’s success was helping debtors not only reschedule their debts but recover their credit.

By Kim Yon-se (kys@heraldcorp.com)