Up to 578% a year. If it referred to bank loan interest, you would take the figure for a typo. The two loan sharks arrested on the 14th by the Metropolitan Crime Investigation Unit of the Gwangju Metropolitan Police Agency each ran an illegal lending business from December 2024 to May this year, charging interest at annual rates of at least 66 to 184.5% and as high as 328 to 578.2%. The unjust profits they took from 19 debtors alone came to about 102.4 million won. They reportedly extracted payment by harassing not only the debtors themselves but also the people around them.
One of the victims was a self-employed person in their 50s whose business had fallen on hard times. After seeing a flyer on the street, the victim made contact and borrowed about 40 million won, and within a few months the interest paid alone is estimated to have exceeded 50 million won. The victim took out other private loans just to pay the interest, was hounded by demands even when a single day late, and passed away this April. Using the note left behind as a lead, the police opened an investigation and booked 20 people, including six loan sharks and 14 people who lent out their bank accounts.
A structure in which the debt does not shrink even after paying more interest than the principal: that is the essence of illegal private lending. This column looks at how far the law cuts off this structure and what victims and their families can do right now.
1. Unregistered Lending Is a Crime in Itself
A. The concept of an illegal private lender
The Act on Registration of Credit Business and Protection of Finance Users (the “Credit Business Act”, 대부업법) (the "Credit Business Act") defines a person who in effect engages in the lending business without registration or renewal of registration as an "illegal private lender" (Article 2, Subparagraph 7). Such persons used to be called "unregistered lenders," but a 2025 amendment made their illegality clear from the name itself. A person who engages in the lending business without registration is punished by imprisonment for not more than ten years or a fine not exceeding 500 million won (Article 19(1)1).
B. The statutory maximum interest rate is 20% a year
Even a registered lender may not charge interest exceeding 20% a year when lending to an individual (Article 8(1) of the Act and Article 5(2) of its Enforcement Decree). Whatever name is attached, such as a gratuity, fee, deduction, or default interest, all money received in connection with a loan is deemed interest (Article 8(2)). The 578% a year in this case is about 29 times that limit.
2. How Far Is a High-Interest Loan Contract Void?
A. An illegal private lender cannot receive a single won of interest
Article 11(1) of the Credit Business Act, as amended in 2025, provides that an illegal private lender may not receive interest when making a loan and that the interest agreement itself is void. In the past only the portion exceeding the maximum rate was void, but now every interest agreement made with an unregistered lender is without effect. However, this provision applies only to contracts concluded or renewed on or after July 22, 2025, the effective date of the amended Act (Addenda, Article 3), so the date of the contract must be checked first. A lender who receives interest in violation of this is punished by imprisonment for not more than five years or a fine not exceeding 200 million won (Article 19(2)2).
B. Contracts above 60% a year or involving threats are void even as to the principal
Going further, Article 8-2 of the Credit Business Act makes the entire loan contract void in certain cases: where the agreed interest rate exceeds 60% a year (Article 5-2 of the Enforcement Decree); where the contract was concluded on markedly unfavorable terms through violence, threats, or force, or by exploiting the debtor's distressed situation; and where the contract contains terms permitting illegal debt collection. In such cases the lender cannot even claim repayment of the principal and must return the principal and interest already received. For a contract at 578% a year, the application of this provision should be examined first.
C. The courts' rulings
Even before these statutory provisions existed, the courts had denied effect to excessively high interest agreements.
Supreme Court en banc Decision 2004Da50426, February 15, 2007
An agreement for a markedly high rate of interest exceeding the limits permitted by social norms is void as to the excess portion as a juristic act contrary to social order, and the borrower may claim the return of interest even if paid voluntarily.
Supreme Court Decision 2010Do11258, March 15, 2012
Regardless of the name, such as prepaid interest or early repayment fees, all money received by a lender is deemed interest, and whether the rate exceeds the limit is determined based on the actual loan period.
This means that labels lenders commonly use, such as "prepaid interest deductions," "fees," or "extension charges," provide no shield at all in calculating the interest rate.
3. Debt Collection That Harasses Family and Friends Is Also Punishable
A. Prohibited debt collection practices
Article 9 of the Fair Debt Collection Practices Act prohibits, among other things, assaulting or threatening a debtor or related persons; causing fear or anxiety by calling or sending messages repeatedly without justifiable cause or at night (from 9 p.m. to 8 a.m. the next day); and demanding repayment from family members or acquaintances who have no obligation to pay. If, as in this case, the lenders harassed even those around the debtor, a violation of this provision is at issue.
B. The level of punishment
Debt collection using violence, threats, or force is punishable by imprisonment for not more than five years or a fine not exceeding 50 million won, and repeated or nighttime contact or demands for repayment from third parties are punishable by imprisonment for not more than three years or a fine not exceeding 30 million won (Article 15 of the same Act). These charges are often prosecuted together with illegal lending charges and serve as a factor that increases the sentence.
4. What to Do Now If You Have Been Harmed
A. If you are the debtor
First, preserve the evidence. Loan flyers or advertising text messages, messages about the borrowing, transfer records, and recordings of collection calls and screenshots of text messages form the basis for both a criminal complaint and a claim for repayment. Second, organize the money you have paid by date and calculate the actual interest rate. If you have paid more in interest than the principal, there is a good chance you already owe nothing. Third, report the illegal private lending to the police or the Financial Supervisory Service. The Credit Business Act also provides a system for suspending the use of telephone numbers used for illegal lending (Article 9-6). Above all, stop taking out another private loan to pay off interest. From that moment, the debt grows not arithmetically but exponentially.
B. If you are a bereaved family member
When a debtor dies, both the debt and the right to recover money from the lender pass to the heirs. If the contract is void, the heirs can claim the return of the principal and interest the deceased paid, and if they suffered loss from illegal debt collection, they can claim damages (Article 11-4 of the Credit Business Act). Conversely, if the deceased's debts exceed the estate, the heirs should consider a qualified acceptance or a renunciation of inheritance within three months from the date they learned of the commencement of inheritance (Article 1019(1) of the Civil Act). Missing this period may leave the family saddled with the debt, so it should be attended to right after the funeral.
C. If you lent out your bank account
In this case, the 14 people who provided their bank accounts were also booked. If granting a request to "just lend me your bankbook for a bit" turns into a channel for illegal lending, you too become a subject of investigation. Whether you received anything in return and whether you knew the purpose become the key issues, so it is wise to put the circumstances in order before questioning.
5. Closing Thoughts
The law has already been changed to void interest agreements with illegal private lenders and, in certain cases, to allow even the principal to be recovered. But for someone seeking quick cash after seeing a flyer on the street, such provisions are far away. For the system to protect people, victims must be able to learn in time that "this money does not have to be repaid." Just as important as amending the law is widening the channels through which victims can easily reach out for help. I hope no one else will give up their life while being chased by interest.
(Shin Dong-woo, Managing Partner, DAEON Law Firm)
Photo: Artsy Crafty, CC0 (StockSnap, Openverse)
2026. 10. 15. · By Attorney Dongwoo Shin
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