The National Assembly and Seoul City have teamed up to introduce a bill that restricts the dual business operations of local government-registered lend companies. This measure is aimed at preventing lend companies from causing financial accidents due to excessive side businesses. The legislation was prepared following the PS Financial incident, which resulted in losses amounting to approximately 260 billion won due to a Ponzi scheme (multi-level financial fraud) perpetrated by a lend company.
On the 14th, according to the status of legislation in the National Assembly, Representative Jo Eun-hee of the People Power Party proposed an amendment to the lend business law containing such provisions. The amendment includes a requirement to restrict dual business operations if a lend company engages in activities that cause conflicts of interest or violate public welfare. While specific industries will be determined through future enforcement decrees, among the types of dual businesses cited by relevant authorities are multi-level marketing and entertainment establishments.
The proposed amendment was based on suggestions made by Seoul City to the National Assembly. While registered lend businesses under the Financial Services Commission have already been subject to dual business restrictions, local government-registered lend companies have not faced such regulations. As local government-registered lend businesses are relatively small in scale, owners often engage in other businesses to make money. Some of these have caused financial accidents or committed public welfare crimes while operating separate businesses in addition to lend operations. In inspections last year, Seoul City uncovered cases where lend companies collected money from customers under the guise of investment funds. Instances of lend companies operating entertainment venues while lending money to employees at those venues at interest rates higher than the legal maximum interest rate (20% annually) were also discovered.
Moreover, the PS Financial incident that surfaced last year further underscored the necessity for restrictions on dual business operations of lend companies. PS Financial, a local government-registered lend company, engaged in similar illegal fundraising activities for seven years until the representative of the company disappeared in December last year, causing investment losses. PS Financial attracted investment by claiming to invest in small and medium-sized enterprise bonds, with current reported losses amounting to around 260 billion won. Although PS Financial was a legitimate company registered in Gangnam District, no significant action was taken against it during its investment activities due to the lack of existing dual business restrictions for local government-registered lend companies.
The National Assembly and Seoul City believe that establishing a legal basis for restrictions on dual business operations will enable more active management and supervision by local governments. This is because local governments will be able to impose fines on lend companies that violate dual business regulations or revoke their lending qualifications. A Seoul City official noted, "After the PS Financial incident came to light last year, we concluded that it is necessary to enhance the management and supervisory authority of local governments and actively suggested this legislation to the National Assembly." The official added, "If the bill passes, monitoring lend companies in the jurisdiction will become easier, and the potential for crime is expected to decrease."
Representative Jo Eun-hee emphasized, "The gaps in the management and supervision by local governments inevitably lead to harm for ordinary citizens," and stated, "We must overhaul the lending management system to prevent harm to citizens from illegal financial activities."