Limit Annual Interest Rate on Private Loans to 60 Percent

Private moneylenders who collect over 60 percent annual (monthly 5 percent) interest from the loans lend to either individuals or businesses with less than five employees will be penalized if the amount of the loan is less than 30 million won.

Private moneylenders are required to register with the municipal or provincial governments and to be placed under their supervision. And for those private moneylenders who had served time in prison are banned from private loan business prior to 5 years after they have been released.

On 8th, Ministry of Finance and Economy (MFE) decided to verify details of a bill designed to protect the borrowers, and submit to the National Assembly a special session in June via consultations with related government offices and preliminary announcement of legislation.

According to a proposed bill, private moneylenders should register with the municipal or provincial government and renew the registration every 5 years.

Those caught violating these regulations will face imprisonment up to 5 years or fines up to 50 million won. Byun Yang-Ho, the director of financial policy of MFE, said that “for loans over 30 million won, the 60 percent interest cap should be applied to the portion up to 30 million won”.

If private moneylenders violate the allocated interest rate, the borrowers may file a complaint and seek a refund for the excess amount of the paid interest. Those who receive over 60 percent interest rate should be in prison up to 3 years or pay a fine up to 30 million won.

Private moneylenders should clearly present their terms of loans in the business office, and they are required to clarify the interest rates on loans in their advertising.

Choi Young-Hae moneychoi@donga.com