Illegal Private Loan Interest Over 6% Can Be Reclaimed... 'Interest Overcharge' Nullified

[Asia Economy Reporter Kangwook Cho] From now on, if interest exceeding 6% per annum is paid to illegal private lenders, it will be possible to recover it. In addition, if illegal private lenders increase overdue interest to refinance or lend without a contract, such loans will be invalidated.

The Financial Services Commission announced on the 29th that the amendment to the "Act on Registration of Credit Business and Protection of Financial Consumers" containing these provisions was approved at the Cabinet meeting. This is a follow-up measure to the "Measures to Eradicate Illegal Private Financing" jointly announced by related agencies in June. The amendment is expected to be submitted to the National Assembly after Cabinet approval within this year.

The amendment first reorganized the legal term for illegal private lenders under the existing Credit Business Act from "unregistered lenders" to "illegal private financiers."

In particular, to strengthen relief for victims of illegal private financing, the scope of refundable interest will be expanded from the portion exceeding 24% per annum to the commercial statutory interest rate of 6% per annum. In other words, once the amendment is implemented, any interest exceeding 6% per annum in loan contracts with illegal private financiers will be considered "invalid," regardless of how high the interest rate is. Until now, even if illegal loans exceeding the maximum interest rate were detected due to unregistered lending, only the portion exceeding 24% was recognized as invalid and subject to refund claims.

Refinancing by adding overdue interest to the principal and drafting a new contract, known as "overdue interest increased refinancing," will also be invalidated. Illegal private financiers have used tactics such as rewriting loan contracts by adding overdue interest to existing loans to keep borrowers bound when they long delay interest payments.

Penalties for illegal private financing, including advertisements impersonating government-supported or financial institution loans such as "Hae-sal-loan," unregistered operations, and violations of the maximum interest rate, will also be strengthened. For impersonation advertisements, penalties will increase from fines up to 50 million KRW to imprisonment up to 3 years or fines up to 50 million KRW. For unregistered operations, penalties will increase from imprisonment up to 5 years or fines up to 50 million KRW to imprisonment up to 5 years or fines up to 100 million KRW. Violations of the maximum interest rate will be punishable by imprisonment up to 3 years or fines up to 50 million KRW, increased from imprisonment up to 3 years or fines up to 30 million KRW.

Additionally, a new obligation clause has been established requiring debt collectors to keep contract-related documents and, upon the debtor's request after repayment completion, the lender must return the original contract. Violations of the storage and return obligations will incur fines up to 10 million KRW.

The Financial Services Commission emphasized, "We will closely cooperate with the National Assembly to ensure that this bill is approved and passed as soon as possible," and added, "We will proactively respond to concerns about the potential increase in illegal private financing following the scheduled reduction of the maximum interest rate in the second half of next year."

Meanwhile, according to the Financial Services Commission, from June to November, a focused crackdown on illegal private financing resulted in the arrest of 4,138 individuals and the detention of 49. Additionally, 272,000 cases of illegal private financing advertisements both online and offline and 6,663 phone numbers were detected and blocked.

This content was produced with the assistance of AI translation services.