FSS 'invalidity certificate' blocks fraud charges against illegal loan victims

An "invalidity certificate" issued by the Financial Supervisory Service for illegal private lending has for the first time been used as grounds for acquittal in a criminal trial. The principle that loan contracts carrying annual interest rates above 60% are void in both principal and interest has begun to function as a practical remedy for victims at the investigation and trial stages.

According to the FSS on Monday, a court recently acquitted a defendant in a case where an illegal lender had filed a fraud complaint against a victim over a gift voucher pre-sale transaction, citing the FSS invalidity certificate as a basis for its ruling. The verdict was handed down Sept. 29 and marks the first time such a certificate has been used to support an acquittal in a criminal trial.

The transaction was structured on paper as a gift voucher sale, but the court found it was in substance a small-sum lending arrangement. It also determined that the money the voucher buyer paid to the seller was not handed over as a result of the seller's deception, but rather represented funds the buyer had knowingly risked in pursuit of high returns. The FSS invalidity certificate — issued on the grounds that the transaction constituted an antisocial illegal lending contract — was admitted as evidence in the proceedings.

This was not the first time an invalidity certificate had been used in a legal dispute. In August, a court had already referenced such a certificate in a civil case, recognizing a victim's right to reclaim funds in an unjust-enrichment payment order filed by an illegal lender against a voucher buyer. The latest ruling extends that recognition from civil to criminal proceedings.

The invalidity certificate is a document issued in the name of the FSS governor under a revision to the Lending Business Act that took effect in July last year. It applies to antisocial lending contracts — including those with annual rates exceeding 60% — and confirms that neither the principal nor the interest carries any repayment obligation, allowing victims to use it to halt illegal debt collection or as supporting material in investigations and trials.

The FSS has accepted applications through its website since March, and simultaneously sends warning messages to both the complainant and the illegal lender upon receipt to discourage further collection activity. Since August, the agency has also streamlined the process so that applicants can simultaneously request other forms of support — including appointment of a debt representative, legal aid, suspension of phone numbers and social media accounts used by lenders, and referral for criminal investigation.

As of Monday, the FSS had issued 573 invalidity certificates covering 941 related debts. Certificates are delivered to applicants and, when the illegal lender's contact information is available, sent directly to the lender by the FSS with a demand to cease collection.

However, the certificates are issued only for antisocial lending contracts concluded on or after July 22 last year, when the revised Lending Business Act took effect. Applicants must also submit objective documentation — such as chat records or bank transaction histories — that can verify the actual loan date, repayment date, loan amount and repayment amount.

The FSS plans to strengthen coordination with related agencies, including the Korea Legal Aid Corporation and police, to help ensure invalidity certificates can be used as evidence in investigations and litigation. Application and complaint data will also be fed into an AI-based analysis system supporting illegal lending investigations, and the agency intends to expand dedicated staffing to shorten certificate review times.

Meanwhile, the government is pursuing measures to step up its response to illegal private lending, including introducing a reward program for reporting illegal online lending advertisements and expanding prior review requirements to cover all online lending ads. Authorities are also considering introducing undercover operations targeting illegal lending crimes and shortening the process so that cases flagged during Credit Recovery Committee consultations can be referred directly to police for investigation.