Amendment to Lending Business Act to Change Long-Desired Industry Terminology Underway
"Helps Regulate Unregistered Operators and Improve Negative Perceptions"
The campaign team of Lee Jae Myung, the Democratic Party presidential candidate, has proposed a policy to double the reward for reporting unregistered loan sharks, a move that has been welcomed by the lending industry. The industry believes that the fundamental reason for its contraction is the illegal activities of unregistered lenders, and the new policy aims to reduce crimes and accidents committed by these unregistered operators.
Lee Jae Myung, the Democratic Party presidential candidate, is casting an early vote with young people at the Sinchon-dong Community Center in Seodaemun-gu, Seoul, on the first day of early voting for the 21st presidential election, May 29, 2025. Photo by Kim Hyun Min
According to political circles and the lending industry on May 30, the Democratic Party specified in its recently released policy pledge book, "The Real Korea Starts Now," on May 28, that "the reward for reporting unregistered lenders will be doubled." This means the current reward of 20 million won will be raised to about 40 million won or more.
Within the industry, illegal debt collection and lending at interest rates exceeding the legal maximum (20% per annum) by unregistered lenders are seen as major factors that fuel negative perceptions of the sector and contribute to its contraction.
For the industry, led by the Korea Loan Finance Association, revising the Lending Business Act to change the terminology for unregistered lenders has long been a key goal.
The industry expects that with the revised Lending Business Act, which will define unregistered lenders as illegal private financiers starting July 22, and the policy to double the reporting reward, there will be significant progress in regulating unregistered operators and revitalizing the industry.
An industry official stated, "The amount of the reward is not what matters most; it is important that a presidential candidate has shown a willingness to create policies that enable legally registered lenders to operate in a proper environment," adding, "This will help reduce the vague anxiety that financially vulnerable groups feel toward registered lenders."
The industry also expressed relief that the policy pledge book did not include a reduction of the legal maximum interest rate. The Democratic Party had previously hinted at a policy to lower the legal maximum rate from 20% to 15%.
According to the Financial Supervisory Service's "2024 First Half Lending Industry Survey," released at the end of last year, the average loan interest rate among 8,437 registered lending companies was 13.7%. However, according to the industry, many registered lenders still offer loans to low-credit borrowers at rates close to 20%.
An industry official commented, "The fact that it was omitted from the pledge book does not guarantee that the policy will not be pursued, but for now, it is a relief," adding, "If the legal maximum interest rate is lowered to 15%, more consumers will likely be denied loans from the industry."
According to the Financial Supervisory Service, the number of registered lenders and users (consumers) has sharply declined, while the total loan balance and the average loan per person have surged. This means that although fewer people are turning to the lending industry, those who do are borrowing larger amounts.
Comparing the end of 2009, when the Financial Supervisory Service began releasing related statistics, with the first half of last year, the number of registered lenders fell by 42.9%, from 14,783 to 8,437. The number of users dropped by 57.4%, from 1,674,437 to 714,000.
In contrast, the total loan balance more than doubled, rising from 5.9114 trillion won to 12.2105 trillion won, and the average loan per person increased nearly fivefold, from 3.5 million won to 17.11 million won.
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