Busan is good

High-Interest Loan Contracts with Annual Interest Rates Exceeding 60% to Be Nullified… Protection for Financially Vulnerable Groups to Be Strengthened

내용

Busan Metropolitan City (Mayor Park Heong-joon) announced that an amendment to the “Lending Business Act,” aimed at eradicating illegal private financing and fostering a reliable loan market, will take effect on July 22. Amid difficult economic conditions, the demand for loans among financially vulnerable groups is increasing, raising concerns over high-interest rates and aggressive debt collection from illegal lenders. Reports of illegal debt collection received by the Financial Supervisory Service surged more than fivefold from 580 cases in 2020 to 2,947 cases last year. As of May this year, 1,485 cases had already been reported, potentially exceeding 3,000 for the first time.

In order to fundamentally eliminate illegal private financing and establish a trustworthy loan market, the Lending Business Act has been amended and will be implemented starting July 22.

Key changes include ▲cancellation of contracts when loan documents are not issued or contain false information ▲exemption from interest repayment and obligation to repay only the principal for contracts signed with illegal lenders ▲nullification of both principal and interest for loan contracts with annual interest rates exceeding 60%. These provisions establish strong consumer protection mechanisms to prevent damage from illegal and high-interest loans.

When using lending services, borrowers must ▲verify whether the lender is registered (search “Loan Company Integrated Inquiry” on portal sites such as Naver) ▲understand that any interest exceeding the legal limit of 20% annually is illegal ▲retain the loan agreement (avoid non-face-to-face methods such as verbal, text, or SNS-based loans) ▲refuse to sign contracts that include fees, advance interest, or charges beyond the agreed interest, as these are unlawful.

Telephone numbers used for illegal lending activities can be deactivated through reporting, thereby enabling citizens to proactively block such illegal practices.

※ Identifying illegal loan flyers (business card-style): If required information such as lender name, registration number, or annual interest rate is missing → take a photo of the flyer and report it to the district office’s lending business department → the city will request a suspension via the Central Radio Management Office.

<Example of Interest Rate Calculation>

◈ If borrowing 3 million won for one year:

Interest Type	Annual Interest	Monthly Interest	Daily Interest
Legal (max)	3,000,000 × 0.20 = 600,000 KRW	600,000 / 12 months = 50,000 KRW	600,000 / 365 days ≈ 1,640 KRW
Antisocial High-Rate	3,000,000 × 0.60 = 1,800,000 KRW	1,800,000 / 12 months = 150,000 KRW	1,800,000 / 365 days ≈ 2,680 KRW

In July, the city will conduct a status survey of lending businesses to verify compliance with the amended Lending Business Act. During on-site inspections in the second half of the year, the city plans to impose strong penalties for violations such as interest rate breaches.

Last year (2024), the city inspected 45 lending companies and imposed fines on 10 of them for issues such as missing loan documentation. In the first half of this year, 22 companies were inspected, and 3 were fined for failing to disclose loan terms. The city plans to inspect 28 companies in the second half of this year.

Kim Bong-cheol, Assistant Mayor of Digital Economy Office, stated, “When borrowing, it is essential to confirm whether the lender is registered. Interest rates exceeding 20% per year are illegal, and contracts exceeding 60% per year are null and void,” adding, “Busan Metropolitan City will rigorously crack down on illegal practices to protect the rights of financially vulnerable citizens.”