FTC begins sanctions against 'Myungnyun Dang' for high-interest loans to franchisees; plans recurrence prevention measures

The Fair Trade Commission (FTC) has launched a formal investigation into Myungnyun Dang, the company behind the popular Myungnyun Jinsa Galbi franchise, over serious allegations of violating the Franchise Act. This move comes after an investigation revealed that the company secured low-interest loans from policy financial institutions, such as the Korea Development Bank, at rates between 3-6%. Instead of passing these benefits to franchisees, Myungnyun Dang allegedly channeled these funds through its affiliated loan businesses, charging franchise owners exorbitant interest rates in the high teens for store opening costs.

This predatory lending practice, coupled with allegations of franchisees being forced to bear inflated costs for interior design and equipment, has drawn sharp criticism. The FTC's investigation, which spanned from September last year to April, also uncovered that Myungnyun Dang failed to disclose crucial details about these loan arrangements in its franchise information disclosure statements, even providing direct credit or arranging loans for franchisees. This deliberate omission and concealment of vital financial information has led the FTC to recommend sanctions, including corrective orders, substantial fines, and even criminal charges against the corporation and its co-CEOs.

In response to this scandal, the government has announced a comprehensive package of measures to prevent future abuses. The Financial Services Commission and the FTC will jointly implement a plan to tighten scrutiny on franchises that utilize policy funds. Future loan and guarantee applications from such companies will be subject to rigorous checks on their lending practices to franchisees. Companies found engaging in unfair lending, like charging high interest rates, will face penalties including restrictions on new policy loans, guarantees, and demands for accelerated repayment.

Furthermore, the government is considering introducing punitive damages, allowing victims to claim up to three times the actual damages incurred from franchisors who force franchisees to purchase non-essential or non-standardized items. This proactive stance aims to protect small business owners from exploitation and ensure a fairer business environment. The case of Myungnyun Dang serves as a stark reminder of the need for robust oversight and accountability within the franchise industry, particularly when public funds are involved.