"Accounts Used for Illegal Private Lending to Be Immediately Frozen"

Strengthening Related Systems to Eradicate Illegal Private Lending
Immediate Suspension of Financial Transactions for Reported Accounts
Effective Interest Rate on Loans to Prevent Illegal Private Lending Drastically Lowered from 15.9% to Around

On the morning of the 29th, Eunok Lee, Chairman of the Financial Services Commission, inspected the performance of illegal private loan countermeasures at the Seoul Financial Welfare Counseling Center Central Center in Dongjak-gu, Seoul. He listened to opinions from field experts and related organizations and announced additional institutional improvement measures to eradicate illegal private loans. Financial Services Commission

The government is moving forward with measures to swiftly freeze accounts used in illegal private loan transactions in order to completely eradicate illegal private lending. It will also support restitution lawsuits so that victims can quickly recover criminal funds frozen in these accounts. In addition, the effective interest rate on illegal private loan prevention loans, which previously reached 16%, will be drastically reduced to the 5-6% range.

Immediate Suspension of Financial Transactions for Accounts Reported as Involved in Illegal Private Lending

On the morning of the 29th, Lee Okwon, Chairman of the Financial Services Commission, announced these measures during a field meeting on eradicating illegal private lending through strengthening the role of the financial sector, held at the Seoul Financial Welfare Counseling Center in Dongjak-gu, Seoul.

According to the Financial Services Commission, from now on, if a victim reports illegal private lending to the Financial Supervisory Service, or if the Financial Supervisory Service becomes aware of an account used for illegal private lending through tips or other means, the account will be promptly suspended. The financial institution will then use enhanced due diligence (EDD) to verify whether the account is legitimate. If no issues are found, transactions will be restored; if the account is confirmed to have been used for illegal private lending, transactions will be blocked.

Chairman Lee stated, "When the Financial Supervisory Service receives reports of accounts to which victims have transferred funds under various pretexts such as interest, principal, late fees, or extension fees, it notifies the relevant bank. The bank then verifies the actual ownership of the account holder, the purpose of the transaction, and the source of the funds." He added, "Until this customer verification is completed, financial transactions will not be permitted." He also said, "Criminal funds frozen in these accounts will be returned to victims in connection with police investigation results, and we will support free restitution lawsuits through the Korea Legal Aid Corporation."

The effective interest rate for illegal private loan prevention loans, currently at 15.9%, will also be lowered. These loans, supplied at an annual scale of about 200 billion won, are available even to those excluded from the financial system, such as delinquent borrowers, but the low recovery rate has led to higher interest rates. Starting this year, the government will reduce the interest rate on these products to 12.5% per annum and introduce a payback system that refunds 50% of the interest paid upon full repayment, lowering the effective interest rate burden to about 6.3%. In particular, for socially disadvantaged groups such as recipients of basic livelihood security, the near-poor, and self-support workers, the interest rate will be reduced to 9.9% per annum, and the effective interest rate burden will be lowered to around 5% upon full repayment.

One-Stop Dedicated Support System to Provide Rapid Assistance to Victims

A one-stop dedicated support system will also be established for victims of illegal private lending. Previously, even if victims reported to the government or related agencies, it was difficult to understand the roles and procedures of each institution, and there were criticisms of inadequate progress updates and post-report management. Going forward, once a victim reports illegal private lending, a system will be in place to provide comprehensive support for all recovery procedures, including stopping illegal debt collection, blocking related phone numbers and accounts, appointing a debtor representative, requesting police investigations, and filing restitution lawsuits for unjust enrichment.

The Financial Services Commission plans to assign a dedicated case manager from the Integrated Support Center for Financially Vulnerable Citizens when a victim reports a case to the Financial Supervisory Service, assisting the victim throughout the entire process of reporting, requesting investigations, and seeking legal remedies, which can be difficult to handle alone. Chairman Lee emphasized, "In the past, the reporting process for illegal private lending was complicated, and inadequate progress updates and post-report management led many to give up midway. From now on, regardless of the reporting channel, a dedicated case manager at the Integrated Support Center for Financially Vulnerable Citizens will assist victims throughout the entire recovery process."

Initial response measures will also be further strengthened to ensure that damages from illegal debt collection are immediately halted. Currently, before a debtor representative is appointed (which takes about 10 days), the Financial Supervisory Service sends a text message warning illegal debt collectors that a debtor representative will be appointed and legal action is pending. In the future, Financial Supervisory Service staff will directly call and verbally warn illegal collectors. In addition, if a loan contract is deemed anti-social and subject to nullification of principal and interest, the Financial Supervisory Service will issue a certificate of invalidity in its name, which can be used to notify illegal private lenders.

Measures will also be implemented to prevent consumers from being exposed to illegal private lending through online loan brokerage sites and banner advertisements. In the past, during the process of online loan brokerage or advertising, borrowers' phone numbers were sometimes passed on to certain lenders, leading to exposure to illegal private lenders. Going forward, the use of anonymous phone numbers within loan brokerage sites will be made mandatory to prevent borrowers' phone numbers from being passed on or exposed to lenders.

Meanwhile, on this day, the Financial Services Commission and the Journalists Association of Korea announced reporting standards for the prevention of illegal private lending and excessive debt damages. These standards prioritize the protection of victims' human rights and interests.