'Ultra-High Interest Proxy Deposits' Targeting Youth... Concerns Over Crime Exposure with Annual Interest Rates of 5000%

Proxy Payment Targeting Purchases of Idol Goods and Game Items
High Interest Rates with Friendly Terms Like 'Service Fee' and 'Late Fee'
Exploitation of 'Small Transactions' Without Interest Limits
Threatening Phrases Along with Personal Information Requests

There has been a series of damages caused by 'ultra-high interest proxy deposits' targeting teenagers with insufficient financial knowledge. The photo shows an example of proxy deposit advertisements on social networking services (SNS). Photo by Financial Supervisory Service

[Asia Economy Reporter Kim Jeong-wan] Illegal ultra-high-interest small loans targeting teenagers are rapidly increasing. If the loan is not repaid within the period, it leads to personal information leakage and threats, raising concerns about the risk of teenagers being exposed to crime. Under current law, there is no separate interest rate limit for small monetary transactions under 100,000 won, calling for countermeasures.

According to data submitted by the Financial Supervisory Service (FSS) to Representative Yang Jeong-suk of the National Assembly's Political Affairs Committee on the 19th, illegal proxy deposit advertisements numbered 1,211 in 2019 but surged 2.5 times to 3,082 by the end of last month this year. Such illegal proxy deposit advertisements have been increasing annually, with 2,576 cases in 2020 and 2,862 cases last year.

Proxy deposit refers to operators enticing teenagers through social networking services (SNS) such as Facebook and Twitter by offering to lend money to buy idol merchandise or game items, then lending small amounts around 100,000 won at 'ultra-high interest rates' for a short period (2 to 7 days).

Proxy deposit operators use friendly terms like 'service fee' or 'late fee' instead of interest or late charges, but they engage in illegal private financing by charging interest rates up to 5,000% per annum.

However, since the victims are teenagers, the amounts are small, and the damage occurs covertly, the number of damage reports is low. According to the FSS, the number of reports was only 1 in 2019, 4 in 2020, and 1 in 2021.

If the money is not repaid within the period, it leads to personal information leakage and threats, raising concerns that teenagers may be exposed to crime. In fact, SNS proxy deposit advertisements require personal information such as name, age, address, student ID, and phone number as application conditions. They also include threatening phrases such as "If you are unreachable for more than a week, be prepared."

The proxy payment advertisement requires personal information such as address and youth ID as application conditions. It also includes threatening phrases like "You better be prepared if you lose contact." Photo by SNS capture

Due to this situation, there are criticisms that the FSS’s crackdown and prevention efforts to protect teenagers lacking financial knowledge are insufficient. Representative Yang said, "The FSS, responsible for cracking down on and preventing illegal proxy deposits, only operated in 2020 and has practically done nothing since last year," adding, "Besides four lifestyle guidance activities and providing educational videos in 2020, there have been no significant promotional activities last year and this year." She also criticized, "It is pathetic that the FSS is engaging in desk-bound administration regarding the illegal proxy deposit problem that drives teenagers into a trap with interest rates exceeding 5,000%."

Meanwhile, as proxy deposit damage cases centered on teenagers have become a social issue, the Gyeonggi Province Special Investigation Team and the Gyeonggi Northern and Southern Police Agencies conducted intensive crackdowns on illegal high-interest proxy deposit activities targeting teenagers in July last year. Seoul City also conducted a 100-day intensive investigation through the Civil Affairs Judicial Police Unit starting in January this year.

There is also criticism that under current law, there is no separate interest rate limit for small monetary transactions under 100,000 won, leading to a surge in proxy deposit damage. Proxy deposits, mostly involving transactions under 100,000 won, are not subject to the statutory maximum interest rate limit of 20% per annum, allowing some to exploit this loophole.

Previously, a related amendment bill was proposed but is pending in the National Assembly’s relevant committee. In June last year, Representative Lee Seong-man of the Democratic Party and others proposed a partial amendment to the Interest Limitation Act to apply the statutory maximum interest rate if the sum of principal and interest exceeds 100,000 won.

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