A path is expected to open for swiftly freezing accounts used for illegal private lending crimes that local governments have uncovered. A measure is being pursued to revise the relevant law so that accounts suspected of being used for illegal private lending, like voice phishing accounts, can also be suspended.
According to the Council of Governors of Korea on the 23rd, the Financial Services Commission is reviewing an amendment to the lend business act to establish provisions for payment suspension on accounts used for illegal private lending crimes. As crimes related to the lend business increased, Gyeonggi Province suggested creating a system to swiftly freeze accounts suspected of being used for illegal private lending.
If the system is introduced, accounts suspected of illegal private lending that are uncovered during investigations by local government special judicial police are also expected to become subject to payment suspension. Local government special judicial police fall under investigative agencies authorized to investigate specific crimes under the Criminal Procedure Act and the Act on the Persons Who Perform the Duties of Judicial Police Officers and the Scope of Their Duties.
Reports of illegal private lending crimes and damages have been steadily increasing. According to the Korean National Police Agency National Office of Investigation (NOI), there were 5,519 illegal private lending crimes last year, more than triple the number in 2021. During the same period, the arrest rate fell from 74.7% to 61%.
Reports of damage from illegal private lending received by the Financial Supervisory Service last year also reached 17,538 cases. This is the highest level since 18,237 cases in 2012, when the illegal private lending damage reporting center was established.
Illegal private lending crimes include engaging in the lend business without registration or receiving interest that exceeds the legal maximum rate of 20% per year. Recently, so-called "sexual exploitation collection," in which debtors are forced to provide nude photos or videos and then threatened with their distribution, has also occurred. Collection tactics are becoming increasingly vicious, such as forcing a debtor's family members or acquaintances to repay the debt in their place.
In response, the Gyeonggi Province Special Judicial Police Task Force on Illegal Lending (TF) proposed to the Council of Governors the introduction of a payment suspension system for accounts used in illegal private lending crimes. The proposal asks that when an investigative agency or the Financial Supervisory Service confirms an account is suspected of being used in a crime, payment can be suspended through a financial company.
Currently, accounts used in voice phishing crimes can be swiftly suspended under the relevant law. In contrast, there are no separate suspension provisions for illegal private lending crimes, and critics have noted limits to blocking criminal proceeds and recovering losses.
Even when an investigative agency confirms criminal suspicion for an illegal private lending account, separate procedures such as obtaining a search and seizure warrant are required. During this process, if the perpetrator withdraws the money in the account or transfers it to another account, recovering criminal proceeds and compensating victims can become difficult.
The Financial Services Commission plans to prepare by Aug. a draft amendment to the lend business act that includes provisions for suspending payments on accounts used for illegal private lending crimes, accepting Gyeonggi Province's proposal. It is also discussing specific legislative directions with Democratic Party of Korea lawmaker Kim Seung-won, who introduced a similar amendment in Jan. this year.
However, the entity that will request and make the final decision on payment suspension has not yet been determined. Reportedly under discussion are options such as allowing investigative agencies, including local government special judicial police, to request suspension directly from financial companies, or having the Financial Services Commission review investigative agencies' requests and decide whether to suspend.
An official at the Financial Services Commission said, "We agree in principle with the aim of suspending payments on accounts used for illegal private lending crimes," and noted, "We are coordinating the responsible entity and the specific procedures."