How should borrowers view interest rates above 20 percent a year and illegal debt collection practices? This column outlines, from a practical legal perspective, the scope of principal repayment and the realistic order of response.
Series Index
Part 1 | Attorney Hong Seung-kwon: “AI Arrives in the Legal Profession”
Part 2 | How Should Lawyers Use AI?
Part 3 | Dividing Roles Between AI and Lawyers
Part 4 | AI Legal Advice Isn’t Enough—Here’s Why Lawyers Still Matter
Part 5 | Attorney Hong Seung-kwon: Korea’s AI Law—KRW 30 Million Fine Threshold
Part 7 | You Can’t Remove a Co-CEO Just Because You Want To
Part 8 | Why ₩10M Deposit May Not Qualify as Small Tenant
Part 9 | Hong Seung-kwon | Why Korea’s Property Registry Still Lacks Public Credibility
Part 10 | Hong Seung-kwon | Can a Seller Cancel After a Provisional Deposit?
Part 11 | Hong Seung-kwon | How Far Does Protection for Small Tenants Extend in Korea?
Part 12 | Presumption of Innocence vs. Victim Testimony
Part 13 | Illegal Lending Victims: What You Owe—and What You Don’t
By Hong Seung-kwon
Principal Attorney, PAN Law Firm (skh@law-pan.com)
No one can live without money. When funds are urgently needed, people borrow, and that is why businesses that specialize in lending exist. These are lending companies. In Korea, such businesses are governed by the Act on Registration of Credit Business and Protection of Finance Users, the Fair Debt Collection Practices Act, and related enforcement decrees.
Those operating outside that legal framework are illegal lenders.
What makes a lender illegal
So what, specifically, makes lending illegal? First, charging an annual interest rate above 20 percent constitutes illegal lending. The same is true, of course, when repayment is demanded through violence, intimidation, or other coercive means.
If someone borrows money from an illegal lender, it may be clear that unlawful interest does not have to be repaid. But what about the principal?
Where the illegality is especially severe, even the principal may not have to be repaid. A representative example is a case in which the interest rate exceeds 60 percent. The same likely applies where violence or threats accompany the loan or collection process.
The pressure borrowers face in real life
Among the clients I have met, not a few had borrowed money from illegal lenders. In many cases, the accumulated interest had already exceeded the principal, and they were being threatened in various ways. Some were told the lender would expose their debt to acquaintances. Others were threatened with having their bank accounts tied to voice-phishing activity and frozen.
As explained above, in such cases, the borrower may not have to repay either the interest or the principal. But most borrowers are not entirely unaware of that. The real problem is that when they are actively being threatened, a theoretical explanation offers little immediate help. What matters, in the end, is what they should do now.
Where to seek help
The first institutions that usually come to mind are the police and the Financial Supervisory Service. Illegal collection practices can be reported to the police, and if the lender shows up at a home or workplace, the borrower can also make an emergency report by calling 112. In practice, however, it takes time for a criminal complaint to develop into a full investigation. In addition, illegal lenders these days often rely more on remote intimidation than on appearing in person, which limits the usefulness of police intervention as an immediate solution.
The Financial Supervisory Service operates a dedicated reporting channel for illegal private lending 피해 through its hotline, 1332. Once a report is filed, the illegal lender is notified of the complaint, if the lender’s phone number is known, and a lawyer may be assigned free of charge through the Korea Legal Aid Corporation. After that, the debtor can communicate through counsel instead of dealing directly with the lender. Still, many illegal lenders now operate without traceable phone numbers and communicate only through KakaoTalk or Line IDs. It also takes some time for appointed counsel to be assigned, so it is better to file a report before the situation becomes too urgent.
When immediate action is needed
What, then, should someone do if they are being threatened right now with a message such as: “If you do not repay by tomorrow, I will contact your acquaintances and have your bank account frozen”?
In some of my cases, I have personally contacted the lender and negotiated on behalf of the client. Perhaps because they, too, knew their conduct was illegal, there was at least some room for dialogue and negotiation. For the client, the fact that they no longer had to face the lender alone brought considerable relief.
The best course is not to use an illegal lender in the first place. But if one has already done so, help should be sought from the police or the Financial Supervisory Service. And if there is not even enough time for that, stepping back and getting help from someone who can intervene on one’s behalf is also a valid option.
About the Author
Hong Seung-kwon is the managing attorney of Pan Law Office in South Korea. His practice covers not only civil and criminal litigation but also emerging legal issues in the digital age. He regularly writes on how technology, property rights, and regulatory policy are reshaping law and markets.
