Loan shark vig capped at 6 percent a year by government

Finance

Published: 23 Jun. 2020, 19:44

Loan shark vig capped at 6 percent a year by government

Lee Myung-soon, Financial Services Commission director general on consumer finance, center, announcing government measures against financial fraud with officials from other government departments, including the Justice Ministry, the police and the tax agency at the government complex in Seoul on Tuesday. [YONHAP]

Rates charged by loan sharks are being capped at 6 percent annually, down from the previous 24 percent.

The new rule came as the government rolled out a number of measures designed to prevent financial fraud. The Financial Services Commission, the Justice Ministry, the National Police Agency and the National Tax Service announced the measures on Tuesday.

A day earlier, President Moon Jae-in headed an anti-corruption meeting.

One of the measures that was announced was against illegal private lenders. While unregistered loans are against the law, the government is allowing the lenders to receive as much as 6 percent annually.

Borrowers already paying loan sharks can reduce their payments to reflect the change, while loans lacking a written contract will be null and void.

“There have been suggestions that illegal private lenders should only be allowed to collect the principal and denied of any interest,” said Lee Myung-soon, director general of the FSC’s financial consumer bureau. “But we decided to allow up to 6 percent.”

Penalties against private lenders have been increased. Currently, the maximum fine for illegal private lending is 50 million won ($41,000), as it is only considered a paperwork violation. That fine will be raised to 100 million won.

Lending of this nature will now be considered a malicious crime.

On average, 34 fraud reports regarding excessive rates were received daily in April and May as households were under financial stress due to the coronavirus pandemic.

The government said the majority of the people who fell victim were vulnerable people, such as teenagers, seniors and housewives.

It also said it will be sending out alert mobile messages, much like the disaster emergency messages, regarding financial fraud, following an order made by President Moon during the anti-corruption meeting on Monday.

“Review measures, sending alerts that inform the methods of the latest voice phishing much like the coronavirus disaster messages that pop up on mobile phones,” President Moon said.

One of the frauds that emerged recently, according to the government, is known as 30-50, where a 300,000 won loan is made and a week later 500,000 won is collected.

Some cases involved idol concert tickets, where fans are lured into borrowing 100,000 won to buy the ticket while having to repay 110,000 won in three days.

The government will also reduce the time it takes to get illegal and fraudulent scheme advertisements removed from two months to two weeks. Related phones number will be disconnected within three days.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]