South Korea moves to double prison terms for illegal high-interest lenders

The government is pushing to toughen criminal penalties for illegal lenders charging annual interest rates of 60 percent or more, raising the maximum punishment to 10 years in prison or a fine of 500 million won ($378,000).

Financial Services Commission Vice Chairman Shin Jin-chang said Tuesday at a Cabinet meeting that criminal penalties against illegal lenders needed to be strengthened.

"We have completed consultations with the Ministry of Justice on raising the penalty ceiling to up to 10 years in prison and fines of up to 500 million won, and plan to introduce legislation soon," Shin said.

Under current law, lenders who charge interest above the legal cap of 20 percent annually face a maximum of only five years in prison or a fine of 200 million won. The financial authorities' move aligns with President Lee Jae-myung's longstanding emphasis on eradicating illegal lending.

At the same Cabinet meeting Tuesday, Lee stressed the need to stamp out illegal lending while also calling for solutions to the credit crunch facing ordinary citizens. "What do we do about people who say they need to borrow even at 30 percent?" Lee said. "Since we are institutionally blocking this, we have to take responsibility."

Financial authorities have included a small-sum, long-term loan product in next year's budget proposal. The program would lend 1 million won to vulnerable borrowers at an annual rate of 4.5 percent over 10 years, with monthly repayments of around 10,000 won.

Borrowers who pass an in-person screening would repay 10,000 won each month.

Beyond expanding credit access, authorities are also running a range of programs to protect victims of illegal lending. The Financial Supervisory Service issues certificates of invalidity to victims of illegal lenders charging 60 percent or more annually. In a recent case involving suspects who disguised illegal lending as prepaid gift-card transactions and then filed fraud charges against their victims, a court cited an FSS-issued certificate of invalidity as grounds for the victims' acquittal.