The financial regulator said Wednesday it will work to strengthen punishment for illegal money lending businesses and nullify their very contracts that are deemed antisocial.

The move follows a recent spike in the number of complaints against loan sharks, which jumped from 10,350 in 2022 to 12,884 last year, according to the Financial Services Commission (FSC).

“The current credit business act has difficulties in preventing and relieving damage from various new and changed illegal money lending businesses as it was largely focused on legalizing credit businesses when it was legislated in 2002,” the FSC said.

Regulator to seek tougher punishment for illegal money lenders – 1

“It was revised in 2015 to raise the entry barrier for new credit businesses, but concerns have continued to persist as the entry barrier still remains too low,” it added.

To this end, the government will seek to sharply raise the minimum required capital for new money lending businesses that seek to register with local governments t
o 100 million won (US$74,426) from the current 10 million won for individuals and to 300 million won from 50 million won for corporations, the financial regulator said, noting those registering with the FSC are required to have a minimum capital of 10 billion won.

The proposed revision will also change the designation of unauthorized loan sharks to “illegal credit businesses” while they are currently referred to as “unregistered credit businesses.”

The FSC argued the new labeling will help make sure people do not enter a contract with any such business, knowing they are “illegal.”

The government will also boost its oversight and monitoring of online loan brokerage sites that serve as the “main passage” for illegal credit businesses, it said.

Penalties for illegal businesses will also be raised.

Those that violate the 20 percent annual interest rate limit on their loans may face a maximum prison term of five years from the current three years or a maximum fine of 200 million won from the current 30 millio
n won, according to the FSC.

The maximum penalty for unregistered or illegal money lending businesses will also be raised from a five-year prison sentence or a 50 million-won fine to five years in prison or 200 million won in fine.

The proposed revision, if legislated, will also provide a legal basis to invalidate any agreements that are clearly unfavorable to consumers, including what the FSC called “antisocial” contracts based on human trafficking, violence or blackmail.

Source: Yonhap News Agency