Myeongryunjinsa Galbi Exploited State-Run Bank Funds to Drain Franchisees; Fair Trade Commission Launches Strong Sanctions

Fair Trade Commission Sends Examination Report after 8-Month Probe

Low-Interest KDB Funds Used for Affiliate Lending Business

Final Sanctions and Fines to Be Decided by Committee Review

Myeongryundang Co., Ltd., which operates the well-known franchise “Myeongryunjinsa Galbi,” has been found to have secured low-interest funds from the state-run Korea Development Bank and then lent the money to franchisees at high interest rates through its own lending company, thereby earning ‘interest income.’ The Fair Trade Commission regards this as a serious violation of the Franchise Business Act and has initiated disciplinary procedures.

Myeongryunjin Sagalbi Branch. The Asia Business Daily DB.

On May 10, the Fair Trade Commission’s Secretariat announced that it had sent an examination report (equivalent to an indictment from the prosecution) to the respondent on May 8, containing factual findings and recommendations regarding Myeongryundang’s suspected violations of the Franchise Business Act, and had submitted the matter for committee deliberation. This investigation is the result of an intensive on-site probe that lasted about eight months, from September last year to April this year.

Low-Interest State-Run Bank Loans Turned into a ‘High-Interest Straw’ for Franchisees

The crux of this case is that Myeongryundang used low-interest policy funds procured from the Korea Development Bank not to promote win-win cooperation with franchisees, but as a ‘profit-making business.’ Fair Trade Commission examiners focused on allegations that, after securing funds at low interest rates, Myeongryundang provided loans to franchisees at uniformly high interest rates through a lending firm owned by major shareholders and related parties.

In particular, during this process, franchisees were reportedly forced to accept high-interest loans without consideration of their financial circumstances, and had to shoulder excessive costs for interior construction and the installation of various equipment and fixtures, far beyond the actual expenses incurred.

Forced Designation of Interior Companies and Concealment of Information... Layered ‘Abuse of Power’

The unfair practices of Myeongryundang were not limited to the lending issue. The examination report also included allegations of ‘restricting trading partners’—namely, designating specific companies for the mandatory interior construction and for the sale of various equipment and fixtures required for franchise openings, and effectively forcing franchisees to conduct business with those companies.

Furthermore, although Myeongryundang directly provided credit or arranged loans for franchisees, it was found to have falsely listed “none” in the disclosure documents provided to prospective franchisees. This deceptive act led potential franchisees to enter into contracts without being properly informed about key conditions, such as headquarters’ financial support requirements.

Fair Trade Commission to Decide Final Sanctions after Full Committee Review

The Fair Trade Commission plans to soon convene a full committee or subcommittee meeting to make a final determination on the illegality of Myeongryundang’s actions and to decide on sanctions, such as imposing fines. The central issue is likely to be whether Myeongryundang unlawfully profited by using state-run bank funds.

The examination report is merely an opinion on the illegality identified during the investigation process; the final decision is made independently by the committee. Once the report is sent to the respondent, they have up to 8 weeks (in the case of a full committee review) to submit a written opinion to exercise their right of defense. The final decision regarding sanctions and their severity will be made after considering the respondent’s opinion.

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