Over 60% 'Murder Interest Rate' Principal and Interest Nullified... Legislative Agreement on Loan Business Act Amendment Between Ruling and Opposition Parties

Amendment Specifies 'Contract Nullification' Even in Cases of Exploitation or Assault/Threat
New Capital Requirements for Loan Brokers: 30 Million KRW Offline, 100 Million KRW Online
Penalties for Unregistered Illegal Private Loans Also Strengthened

The amendment to the Loan Business Act, which states that if a loan company demands an ultra-high interest rate of over 60% per annum, neither interest nor principal needs to be repaid, has passed the National Assembly's Political Affairs Committee. The amendment also allows contracts to be invalidated if there is sexual exploitation, assault, or threats during debt collection. With no opposition between the ruling and opposition parties, the bill is expected to be smoothly implemented after the plenary session.

According to financial authorities and the National Assembly on the 4th, the Political Affairs Committee held its third subcommittee and a full meeting the previous day and passed the amendment to the "Act on Registration of Loan Business and Protection of Financial Consumers," which focuses on strengthening regulations on loan businesses. After resolving issues such as excessive legislation through several subcommittee meetings, the full committee was convened immediately to reach a bipartisan agreement on the amendment. Members of the Political Affairs Committee, including Han Jeong-ae, Seo Young-kyo, Jo Jeong-sik, Min Byeong-deok, Cheon Jun-ho, Kim Hyun-jung, and Kang Min-guk, have shown their intention to amend the existing Loan Business Act by jointly proposing 15 amendments.

According to the agreed amendment, if a loan company enters into an antisocial contract, the effect of the loan contract is limited, and repayment of principal and interest is not required. If there is sexual exploitation, human trafficking, bodily injury, assault, or threats during the collection process, the contract becomes invalid. The amendment also includes grounds to invalidate both principal and interest for loan contracts with an annual interest rate exceeding 60%, which is three times the current legal interest rate cap of 20% per annum.

Earlier, on the 2nd, the ruling and opposition parties failed to reach consensus on the "antisocial interest rate" among 20%, 60%, 80%, and 100% during the first subcommittee of the bill review. The next day, the subcommittee agreed that if the interest rate offered by the loan company falls within the range of 60% or more, with the exact figure to be determined later by enforcement ordinances, repayment of principal and interest would not be required.

A Financial Services Commission official stated, "The government will set the antisocial interest rate through future enforcement ordinances, reflecting overseas cases, so that interest rates of 60% or higher can be considered antisocial contracts."

Additionally, the Political Affairs Committee agreed to invalidate all interest agreements related to contracts with illegal unregistered loan businesses. The name of unregistered loan businesses will also be changed to "illegal private lenders" to help financial consumers easily distinguish between legitimate loan companies and illegal ones that violate current laws.

The amendment also strengthens the capital requirements for loan business registration. For individuals, the capital requirement for loan business registration is raised from 10 million KRW to 100 million KRW, and for corporations, from 50 million KRW to 300 million KRW. The capital requirement for loan brokerage businesses is also increased from the current 10 million KRW to 100 million KRW. Furthermore, a new capital requirement for loan brokerage businesses is established at a minimum of 30 million KRW.

In response to criticisms that penalties were too weak, the level of punishment has been increased. Penalties for illegal unregistered private lending have been strengthened from imprisonment of up to 5 years or a fine of up to 50 million KRW to imprisonment of up to 10 years or a fine of up to 500 million KRW. Violations of the maximum interest rate have also been raised from imprisonment of up to 3 years or a fine of up to 30 million KRW to imprisonment of up to 5 years or a fine of up to 200 million KRW.

The amendment passed by the Political Affairs Committee will undergo review by the National Assembly's Legislation and Judiciary Committee before being processed in the plenary session. Since the regular plenary session is scheduled for the 10th of December, the bill is expected to be enacted by the end of this year at the latest. The enforcement date will be within six months after promulgation, and a two-year grace period will be provided for the capital requirements.

A staff member from the office of a member of the Political Affairs Committee explained, "There was no disagreement between the ruling and opposition parties on the need for amendment, but due to several issues such as the interest rate standard and excessive legislation, multiple subcommittee meetings were held to continue discussions. The government and the amendment bill found common ground to reach a conclusion."