From Next Month, Illegal Private Lending Borrowed-Name Accounts Will Be Immediately Blocked: "No Criminal Organization Can Defeat the Government"

Interest Rate on Illegal Private Lending Prevention Loans Sharply Cut from 15.9% to 5?6%

Starting next month, the government will suspend transactions on so-called "borrowed-name accounts" that have been exploited for illegal private lending. This measure is intended to prevent illegal private lenders from withdrawing cash from these accounts and hiding the funds. In addition, the government will launch a "one-stop support system" that allows victims of illegal private lending to access all related relief services with a single report. To prevent low-credit, vulnerable groups from being pushed into illegal private loans with excessively high interest rates, the government will expand the supply of low-interest policy finance for low-income citizens in the 5-6% range.

On February 6, Yoon Changryul, Minister for Government Policy Coordination, held a meeting of the "Pan-Government Task Force (TF) for the Eradication of Illegal Private Lending" at the Integrated Support Center for Microfinance in Jung-gu, Seoul, to discuss this plan to eradicate illegal private lending. Minister Yoon said, "Illegal private lending is not a simple loan, but a representative livelihood-infringing crime that restrains the person of the debtor," and stressed, "To realize the Lee Jae-myung administration's national goal of creating 'a society where the lives and safety of the people come first,' illegal private lending must be eradicated without fail." He went on to say, "Government efforts alone may not immediately eradicate illegal private lending, but there is no criminal organization that can ultimately prevail over the government," calling on relevant agencies for an "all-out response."

Most of the accounts used for illegal private lending have been identified as borrowed-name accounts whose real owners are unclear. The authorities will transmit account information reported as related to illegal private lending to financial institutions and, if the real owner or source of funds cannot be verified through enhanced customer due diligence, will immediately suspend use of the accounts. Through this, they expect to freeze criminal proceeds and make it easier to recover damages. The goal is to complete the construction of institution-specific IT systems within this month. In addition, the government plans to establish a legal basis that will allow the state to confiscate criminal proceeds from illegal private lending and return them directly to victims, even if the victims do not come forward themselves. In connection with this, an amendment to the Act on the Recovery of Corrupt Assets was introduced in the National Assembly in November last year.

The Lee Jae-myung administration has included "eradication of livelihood-infringing financial crimes" among its national policy tasks and has been operating a corresponding response system. The meeting on this day was the second to be held since the launch of the Lee Jae-myung administration. However, the number of reports of damage from illegal private lending filed with the Financial Supervisory Service has continued to rise, from 10,350 cases in 2022 to 16,988 cases last year. In particular, there have been criticisms that the government's response speed remains slow even after reports are filed.

In response, the government has decided that, for reports of illegal private lending received by financial authorities, the necessary relief measures will be collectively requested from the relevant agencies without requiring additional applications from victims. Under this system, once a victim files an initial report with the authorities, subsequent measures such as requesting an investigation, blocking the perpetrator's phone number, appointing a legal representative for the debtor, and issuing advance warnings to stop debt collection will be carried out autonomously by each relevant agency.

Ultimately, the government plans to supplement policy finance for low-income citizens so that low-income, vulnerable groups can obtain funds at low interest rates through institutional finance rather than illegal private lenders. Starting this year, the government will sharply lower the interest rate on loans for the prevention of illegal private lending (with a limit of 1 million won) from the current 15.9% to the 5-6% range, and will expand the supply from 132.6 billion won last year to 200 billion won this year.

The interest rate on special guarantee loans under the Sunshine Loan program, which have a credit limit of 10 million won, will also be reduced from 15.9% to 12.5%. For debtors who have fully repaid their loans for the prevention of illegal private lending, the government will provide additional support of up to 5 million won in low-interest loans at 4.5%, if they so wish. This loan product is scheduled to be newly launched within the first quarter of this year.