Annual Interest Rates Over 4,000% and Distribution of Nude Photos... Court Orders Full Repayment of Principal and Interest

First Ruling Declares "Anti-Social Illegal Loan Agreements Are Void"
Orders Payment of 8.9 Million Won in Principal and Interest, and 2 Million Won in Damages

The court has ordered illegal private lenders, who charged annual interest rates exceeding 4,000% and distributed nude photos of a debtor, to return the full amount of principal and interest. This is the first ruling declaring that anti-social illegal loan agreements are null and void.

On June 2, Yonhap News, citing the Financial Supervisory Service and the Korea Legal Aid Corporation, reported that on May 29, the Gwangju District Court fully accepted the claims of a man in his 20s, identified as A, who filed a lawsuit against six illegal private lenders demanding the return of principal and interest already paid, as well as damages for illegal acts.

Gwangju District Court Exterior

Victim A borrowed a total of 5.1 million won from the illegal lenders over 15 transactions. The lenders applied an annual interest rate of up to 4,171%, demanding repayment of 8.9 million won in principal and interest. When A delayed repayment, they distributed nude photos of A, which had been obtained as collateral, to his acquaintances and threatened to further distribute the photos to others.

With the help of the Financial Supervisory Service and the Korea Legal Aid Corporation, A demanded the return of 8.9 million won in principal and interest already paid to the illegal lenders, as well as 2 million won in damages for illegal acts during the collection process, including the distribution of nude photos and threats. The court ordered the full return of the principal and interest paid by A and fully accepted the claim for damages related to the illegal acts during the collection process, such as the distribution of nude photos and threats.

This ruling was made by default, as the defendants did not contest A's claims. While the Financial Supervisory Service and the Corporation actively argued by applying Article 103 of the Civil Act, the defendants did not present any counterarguments. Article 103 of the Civil Act stipulates that legal acts with content that violates good morals or other social order are null and void.

This is the first ruling requiring the return of not only interest but also the principal to victims of anti-social illegal loan agreements. Previously, only interest exceeding the statutory rate (20% per annum) was considered invalid, but there was no precedent requiring the return of the principal. The Financial Supervisory Service and the Corporation explained, "This ruling confirms that even for damages that occurred before the revised Lending Business Act takes effect next month, the full amount of principal and interest can be returned."

On July 22, the revised Lending Business Act, which denies the validity of illegal loan agreements, will go into effect. After that, for anti-social illegal loan agreements involving sexual exploitation during collection, human trafficking, or violence and threats, both the principal and interest will become invalid, and for loan agreements with illegal private lenders, the interest will become invalid.