Warning Issued on Predatory Vehicle-Backed Loans in South Korea

South Korea's Financial Supervisory Service (FSS) has issued a consumer warning against a predatory form of vehicle-backed lending that is increasingly targeting borrowers. This scheme involves lenders seizing the borrower's vehicle or motorcycle as collateral and then demanding exorbitant fees for parking and transportation, effectively pushing the effective interest rates far above the legal limit.

These illicit lenders secure collateral by taking physical possession of the borrower's vehicle. They then charge additional fees, such as parking and transportation costs, on top of the loan's interest. This practice allows them to charge annual interest rates ranging from 27% to as high as 229%, significantly exceeding the legal maximum.

Adding to the predatory nature of these loans, lenders often threaten borrowers whose vehicles are still under lease or installment plans. They may claim they will report the vehicle to the finance or leasing company, potentially leading to legal trouble for the borrower. In some cases, lenders have been known to drive the vehicles without consent, causing depreciation and leaving the borrower responsible for parking tickets and tolls.

The FSS analyzed 12 related complaints received this year, with loan amounts varying from 2.5 million to 30 million won. The agency emphasized that any fees charged by lenders in relation to a loan are considered interest. Registered lenders are prohibited from charging over 20% annual interest, and any interest exceeding 60% annually renders both the principal and interest void.

The FSS also warned that borrowers could face criminal charges if they use leased or installment vehicles as collateral without proper authorization. Leasing a company's vehicle as collateral can constitute embezzlement, while using an installment vehicle without the finance company's consent can lead to charges of obstruction of rights. The FSS urges anyone suspecting such illegal lending activities to report them to the authorities to prevent further damage and facilitate victim relief.

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If you suspect 변종 불법사금융 (variant illegal private loans), please actively report to the Financial Supervisory Service or investigative agencies to prevent further damage and seek relief.