Seoul Launches 100-Day Crackdown on Illegal Private Lending and Proxy Deposits

Seoul Launches Major Crackdown on Illegal Lending
Joint Effort with Local Districts, Financial Supervisory Service,
and Korea Loan Finance Association

[Asia Economy, Reporter Lim Cheolyoung] On January 26, the Seoul Metropolitan Government's Special Judicial Police for Civil Affairs announced that, with the number of financially vulnerable people rising due to the prolonged COVID-19 pandemic and the Lunar New Year holiday approaching, illegal high-interest, ultra-short-term daily loans and "proxy deposits" targeting teenagers are expected to become more prevalent. The agency stated that it will conduct an intensive 100-day investigation into these practices.

The Special Judicial Police explained that, since the statutory maximum interest rate was lowered from 24% to 20% in July last year, financial institutions have tightened their loan screening processes, resulting in an increase in high-interest, ultra-short-term daily loans targeting financially vulnerable groups. The agency will focus its investigation on these loans. In cases where interest and fees are deducted in advance before the loan is issued, the interest rate must be calculated based on the actual amount received by the borrower. Even if the nominal annual interest rate is 20%, the actual interest rate often exceeds 20% due to the deduction of upfront interest and fees.

Additionally, the agency will focus on illegal advertisements impersonating public institutions or financial institutions, as there has been a rise in victims who are misled into believing these are bank loans. After sending mass text messages with phrases such as "Special Policy Loan for Small Business Owners" to make the offer appear to be a legitimate financial product, the perpetrators induce inquiries and then mention policy-based loans like Sunshine Loan, Smile Microcredit, or Change Dream Loan. If the applicant is rejected, they are then steered toward high-interest loans.

The investigation will also focus on cases of "proxy deposits" targeting teenagers, in which individuals pay for game items on behalf of others via social media and then charge interest. Although these proxy deposits are typically small amounts, around 100,000 KRW, they often involve a service fee of 20-30% of the principal and late fees of 1,000 to 10,000 KRW per hour for delayed repayment.

During this special investigation period, the agency plans to maximize the prevention of and reporting on illegal lending activities by cooperating with local districts, the Seoul Credit Guarantee Foundation, and the Korea Loan Finance Association. Dedicated investigators will be assigned to each region to strengthen victim counseling and information-gathering activities. In addition, the agency will distribute its own "Prevention and Reporting Guide" through each district and branch of the Seoul Credit Guarantee Foundation by assigning responsible investigators by region.

If violations of interest rate regulations or illegal advertising are detected, the agency will request administrative action and actively pursue criminal charges. Last year, 32 illegal lenders were criminally charged and referred to the prosecution: 27 for unregistered lending and charging interest above the legal limit, 3 registered companies for exceeding the statutory annual interest rate of 20%, and 2 for illegal lending advertisements.

Kang Okhyun, head of the Seoul Metropolitan Government's Special Judicial Police for Civil Affairs, urged, "With the prolonged COVID-19 social distancing measures, illegal private lenders are targeting financially vulnerable groups such as small business owners who lack operating funds. Please be especially cautious not to fall victim to these illegal practices."

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