High-Interest Illegal Payday Loans Targeting Low-Income People with 745% Annual Rate on Monthly Loans... Warning Issued

Beware of Illegal High-Interest Quick Loans Targeting Ordinary People in Their 30s-50s
High-Interest Loan of 300,000 Won with a Condition to Repay 500,000 Won After One Week

[Asia Economy Reporter Kangwook Cho] #. Ms. A (23 years old, housewife) borrowed 500,000 KRW on the condition of repaying 800,000 KRW after one week through the team leader of ○○ Loan Company, whom she met on an online loan brokerage site last April. Trusting the team leader's promise to lend 3 million KRW at an annual interest rate of 24%, she refinanced 1.4 million KRW on the condition of repaying 1.9 million KRW two weeks later. After extending the repayment by one week, she was asked to deposit an additional 380,000 KRW as a late fee. Needing urgent funds, Ms. A deposited 380,000 KRW, but the team leader disappeared after only saying that the promised 3 million KRW loan would be disbursed after head office review. In the end, Ms. A borrowed 1.9 million KRW for a month and repaid 3.08 million KRW, effectively using a high-interest loan with an annual interest rate of 745%.

Recently, taking advantage of the COVID-19 pandemic, illegal quick loans targeting financially struggling ordinary citizens such as self-employed and daily workers have surged, prompting the Financial Supervisory Service (FSS) to issue a warning. In particular, frequent damage has been reported from so-called 'first transaction conditional 30-50 (or 50-80) loans' through illegal lenders accessed via online loan brokerage sites. This method involves lending 300,000 KRW (500,000 KRW) on the condition of repaying 500,000 KRW (800,000 KRW) after one week, claiming that small transactions are needed to build credit, and increasing the principal through extension fees and other charges in case of delinquency.

According to the FSS on the 14th, a total of 63,949 damage reports were received through the Illegal Private Finance Reporting Center in the first half of this year. Among them, consultations on financial services for ordinary citizens (37,872 cases) accounted for 59.2%, followed by loan fraud and voice phishing (22,213 cases, 34.6%), unregistered lending (1,776 cases, 2.8%), and illegal loan advertisements (912 cases, 1.4%).

By report type, consultations on financial services for ordinary citizens decreased compared to the previous period (down 9.1%), but reports related to illegal lending such as illegal debt collection, high interest rates, and unregistered lending increased sharply (up 31.1% compared to the previous period, up 62.6% compared to the same period last year).

Also, reports of voice phishing impersonating prosecutors and others decreased (down 7.5%), but reports of loan fraud disguised as low-interest refinancing loans and integrated refinancing loans increased significantly (up 32.8%). As low interest rates persist and market liquidity increases, reports and consultations on fraud disguised as high-yield investment and financial transactions also increased (up 34.5%). Various methods were reported, including virtual currency-related fraudulent fundraising (44 cases), private FX margin trading fraud (33 cases), and investment fraud (11 cases).

The FSS urged that when consulting for loans in person, one should verify by calling the advertising phone number registered on the official registered lending company’s website to confirm the staff and company name before proceeding. It pointed out that forcing first transaction conditional 30-50 (or 50-80) loans for credit verification and then raising the limit after using urgent funds is highly likely to be fraudulent.

Fraud disguised as low-interest refinancing loans was also frequent. When consulting loans only by phone after seeing online advertisements for government-supported loans or integrated refinancing loans, one should be aware of the high possibility of fraud using the personal information provided. Applying for or inquiring about loans from other financial companies while using a loan from one financial company is not a violation of loan contracts or laws, so if threatened, do not transfer money and report to the Financial Supervisory Service (1332) or the police.

There were also damages related to fraudulent fundraising disguised as virtual currency investment. The FSS emphasized that companies promising high returns with promising business models should first be checked through the FSS Financial Consumer Information Portal "Fine" to confirm whether they are regulated financial companies. It should be noted that damages caused by transactions with fraudulent fundraising companies cannot be compensated through the FSS dispute resolution procedures.

The FSS supports reporting to the Illegal Private Finance Damage Reporting Center for damages caused by illegal debt collection, high interest rates, and unregistered lending, and provides assistance with investigation requests and connections to lawyers from the Korea Legal Aid Corporation. It also advised that when borrowing or investing, it is preferable to verify whether the company is officially registered through the FSS Financial Consumer Information Portal Fine (http://fine.fss.or.kr) under Regulated Financial Companies and Registered Lending Companies Integrated Management.