Current Civil and Commercial Law Statutory Interest Rates Fixed at 5% and 6%, Constitutional Court Rules "Constitutional"

2017 Constitutional Court Precedent Maintained... 7 to 1 Decision for Constitutionality
Justice Kim Hyungdoo's Dissent: "Need to Introduce a Variable Statutory Interest Rate System"

The Constitutional Court has ruled that the Civil Act and Commercial Act, which fix the statutory interest rate on claims at 5-6% in the absence of special provisions by law or agreement between parties, do not violate the Constitution.

Tension is mounting at the Constitutional Court's Grand Chamber in Jongno-gu, Seoul, on the 3rd, one day before the Constitutional Court's ruling on the impeachment trial of President Yoon Seok-yeol. April 3, 2025 Photo by Joint Press Corps

According to the legal community on the 15th, the Constitutional Court made a constitutional ruling on the 10th regarding a constitutional complaint against Article 379 of the Civil Act, Article 54 of the Commercial Act, and Article 3, Paragraph 1 of the Act on Special Cases Concerning the Promotion of Litigation, which regulate statutory interest rates, with a 7 to 1 decision in favor of constitutionality.

Article 379 of the current Civil Act stipulates that the interest rate on interest-bearing claims shall be 5% per annum unless otherwise provided by other laws or agreed upon by the parties. Article 54 of the Commercial Act also stipulates that the statutory interest rate on debts arising from commercial transactions shall be 6% per annum. Generally, when a lawsuit proceeds over debt repayment and the creditor wins, the debtor is liable to pay delayed damages according to the applicable statutory interest rate.

The petitioners argued that the fixed interest rate system infringes on the debtor’s property rights because the statutory interest rate becomes excessively high compared to market interest rates. However, the Constitutional Court stated regarding Article 789 of the Civil Act, "To effectively achieve the legislative purpose of establishing a standard norm concerning interest rates, it is necessary for the law to notify a certain interest rate in advance and provide clear behavioral guidelines to the parties," and added, "It is difficult to see that there is a clearly less restrictive means to realize the legislative purpose while limiting the debtor’s property rights." This maintains the precedent set by the Constitutional Court in 2017.

Furthermore, regarding Article 54 of the Commercial Act, the Constitutional Court said, "Commercial transactions generally require more capital and generate greater profits from the use of funds than general civil transactions, so Article 54 of the Commercial Act sets the commercial statutory interest rate somewhat higher than the civil statutory interest rate in Article 379 of the Civil Act," and concluded, "It cannot be considered a violation of the principle of proportionality or an infringement on the debtor’s property rights."

Additionally, the Constitutional Court found no issue with the provision in the Act on Special Cases Concerning the Promotion of Litigation that applies a higher interest rate under the Civil and Commercial Acts from the day after the complaint is served to the debtor, based on a presidential decree. The petition concerning the presidential decree setting the interest rate at 12% was dismissed on the grounds that presidential decrees cannot be subject to constitutional review. However, Justice Kim Hyung-doo dissented, stating that there is a need to introduce a variable statutory interest rate system that adjusts the statutory interest rate according to the market, and argued that the current fixed interest rate system is unconstitutional.

Meanwhile, the Ministry of Justice is pushing for a complete revision of the current Civil Act to modernize it. The proposed amendment includes the introduction of a variable interest rate system that adjusts the statutory interest rate according to changes in economic conditions such as interest rates and inflation.