The Financial Services Commission is moving to amend the law to make extremely high-interest lending at annual rates above 60% a criminal offense. After rendering such contracts void under civil law, it intends to raise the level of punishment as well. President Lee Jae Myung called for blocking illegal private lending while boldly expanding financial support for vulnerable people who need emergency funds.
At a Cabinet meeting on the 27th, asked by President Lee how far the plan to strengthen punishment for high-interest loans had progressed, Financial Services Commission Vice Chairman Shin Jin-chang replied, "We have consulted with the Ministry of Justice on measures to punish loans above 60% a year with up to 10 years in prison and fines of up to 500 million won, and we plan to push for the introduction of a bill in the regular National Assembly session soon."
Under the current Money Lending Business Act, charging interest above the statutory maximum rate of 20% a year carries up to five years in prison or a fine of up to 200 million won. The commission's idea is to separate out the portion above 60% a year and impose heavier penalties. Shin said, "For interest above 60% a year, principal and interest are voided under civil law, but there is also a need to strengthen criminal punishment of illegal private lenders who collect it."
President Lee voiced concern that cracking down on illegal private lending could also cut off the means of raising money for vulnerable people who cannot clear the bar of formal financial institutions. "They cannot borrow from financial institutions, and loan sharks refuse to lend because they would be punished, so what are desperate people supposed to do?" he said. "Since we are blocking it institutionally, we must take responsibility." He also remarked that "support for ordinary people's finance is too weak."
Shin reported, "We have reflected in next year's government budget bill a program that lends 1 million won to vulnerable people, including those in arrears, to be repaid in installments over 10 years." The commission's budget bill for next year newly includes 300 billion won for the related program, the "K-Livelihood Protection Loan." He added, "As a record of faithful repayment builds up, we plan to expand the loan amount to 2 million won, 5 million won and 10 million won, and gradually widen the financial institutions that can be used from the Korea Inclusive Finance Agency to banks."
The president again demanded supplementary measures after this report, saying, "Considering the national capacity and fiscal capacity of the Republic of Korea, it is too weak." "Lending 3 million won if someone repays 1 million won well is a story for when there is room to spare," he stressed. "There must be measures for those who say they will take urgent cash right now even at interest of hundreds of percent."
At the same meeting, the Office for Government Policy Coordination also reported that it will continue a whole-of-government response to root out illegal private lending and protect victims. In line with additional tasks announced on the 2nd, the Money Lenders Association will strengthen voluntary screening to filter online loan ads in advance, and a new reward system for reporting illegal loan ads will be created. Considering criminal methods, the introduction of undercover investigations is under review, and a period to encourage victims to report will be set in November. It will also check whether platform operators properly comply with their duty to block illegal ads, and push to dispatch police officers to the Credit Counseling and Recovery Service to speed up investigations.