South Korea's financial regulator will sharply toughen criminal penalties for illegal lending at ultra-high interest rates above 60% a year. The plan would raise the maximum punishment to 10 years in prison or a fine of 500 million won ($348,000), from the current five years or 200 million won. President Lee Jae-myung also called for a significant expansion of financial support for vulnerable groups alongside the crackdown on illegal lending.
Shin Jin-chang, vice chairman of the Financial Services Commission, said at a Cabinet meeting held at the Blue House on the 27th that criminal penalties needed to be strengthened for illegal lenders who collect interest above 60%, noting that such principal and interest are already void under civil law. "We have completed consultations with the Ministry of Justice on raising the punishment to up to 10 years in prison or a fine of up to 500 million won, and we plan to legislate it soon during the regular National Assembly session," he said.
Under the revised Lending Business Act that took effect in July last year, loan contracts carrying interest above 60% are void in both principal and interest. However, criminal punishment for violating the 20% legal interest rate cap is limited to up to five years in prison or a fine of up to 200 million won, regardless of the interest level. The commission plans to create separate aggravated punishment provisions for cases in which interest above 60% is collected.
Lee, who received a report on illegal lending regulations and support programs for low-income borrowers that day, said the government's measures were not sufficient. "The government has to take responsibility for people who say, 'I have no money even to end it all, so I have to borrow even at 100% interest — what am I supposed to do?'" he said. "Support for low-income borrowers is far too weak."
Shin explained that the government's budget proposal includes a phased small-loan program for vulnerable groups. Borrowers would take out 1 million won and repay about 10,000 won a month over 10 years, with the credit limit raised to 2 million won after six months to a year of consistent repayment, and later expanded to 5 million won and 10 million won.
Lee, however, said that approach did not go far enough. "Lending 3 million won to someone who repays 1 million won well, and then 5 million won if they repay that well — that is a story for when people have some breathing room," he said. "We need measures for people who really need money and have to borrow even at 100% interest."