Fake Phone Rentals Used for Loans with 150% Annual Interest

A novel form of illegal lending has emerged in South Korea, preying on individuals by using fabricated mobile phone rental agreements as collateral for exorbitant loans. These loans carry annual interest rates surpassing 150%, and borrowers who fail to repay face threats of criminal prosecution.

The Financial Supervisory Service (FSS) revealed it has received eight complaints and tips regarding this scheme and has referred the cases to the police for investigation. The modus operandi involves loan sharks collaborating with mobile phone rental companies. They instruct borrowers to register as business owners, often for delivery services, to facilitate the acquisition of multiple mobile phones.

Subsequently, a mobile phone rental contract is established. However, the phones are never actually delivered to the borrower, nor are the SIM cards activated. Despite this, victims are coerced into signing documents, such as installation confirmation certificates, to create the illusion of a legitimate rental agreement. The FSS highlighted a case where the daily rental fee for ten phones, normally around 40,000 won, was inflated to 170,000 won, equating to an annual interest rate of 160% when calculated over 200 days.

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Anyone demanding business registration or the signing of a fake rental contract as a condition for a loan is highly likely to be an illegal lender.

When borrowers default on payments, the loan sharks transfer the rental debt to collection agencies. These agencies then pressure the victims, often threatening criminal charges for violating the rental contract. The illegal lenders typically conduct the loans verbally, without separate contracts, while only the fake rental agreements are documented. This allows them to claim no association with the loan if reported, attempting to evade regulations under the Loan Business Act.

The FSS strongly advises the public to be wary of anyone demanding business registration or fake rental contracts as a condition for a loan, as this is a strong indicator of an illegal lender. The agency stressed that these fraudulent contracts can be exploited for threats and extortion, with victims potentially facing additional penalties and rental fees.

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Fake rental contracts can be used as a tool for threats and criminal charges upon default, and victims may be additionally charged with penalty fees and rental fees.