The South Korean government on Tuesday unveiled measures to slap sanctions on illegal private lenders to protect local financial consumers from related fraud. 

The Financial Services Commission and relevant government agencies announced that they will compose a pangovernmental group to jointly implement countermeasures against illegal private lending here, which normally targets low-income and desperate families, charging high interest rates. 

The move came as the country’s illegitimate private lenders have increasingly committed financial fraud against borrowers struggling from the economic shock of the coronavirus outbreak, as they pose as financial institutions authorized by the government and charge excessively high interest rates afterward. 

The number of reports of financial damages from illegal private lending jumped 60 percent between April and May from a year earlier in the same period, according to the FSC. 

Responding to the growing loss, the government plans to bring down the legal interest rate of 24 percent charged on private loans to 6 percent in an effort to reduce illegal moneylenders’ incentives to fraud and corruption. 

“The current law allows private lenders including even illegal businesses to raise their loan yields to a maximum of 24 percent,” said Lee Myung-soon, a general director of the financial consumer policy unit at the FSC. 

The government will also speed up making a legal framework to punish illegal moneylenders. The plan has come as private lenders pretending to be government agencies have not been subject to criminal charges under the related law. Offenders will be fined up to 100 million won ($83,000), according to the government’s scheme. 

As for online advertising for private loans, whereby some illegal lenders pose themselves as officials from the public financial agencies, the Financial Supervisory Service will join forces with the Korea Communications Standards Commission as well as Korea Internet and Security Agency in order to monitor deceptive online promotions on social media platforms and internet-based communities. 

To improve monitoring of online financial crimes, the Ministry of Science and ICT will step up efforts to develop an automated AI-based system to remove online postings about illegal private loans, officials said. 

Meanwhile, in a preventative move, the financial authorities will also send out mobile text messages to warn people of possible money scams in a similar way to that in which the Central Disaster and Safety Countermeasure Headquarters currently alerts local residents when there are new confirmed cases of the coronavirus via text message. 

By Choi Jae-hee (cjh@heraldcorp.com)