The nation’s two largest private lenders face suspension for allegedly charging some borrowers illegal interest rates, officials said on Tuesday.

Gangnam Ward Office of Seoul, which has investigated these practices in coordination with the Financial Supervisory Service, said Tuesday that it would halt the operations of Rush N Cash and Sanwa Money soon.

The private loan industry’s No. 1 player Rush N Cash and No. 2 player Sanwa Money have been suspected of violating the upper ceiling of 39 percent per annum interest rates, according to the office.

“Though the annual maximum loan rate has been lowered from 44 percent to 39 percent under regulatory rules, the lenders extended some loans with rates between 44 and 49 percent,” the office said.

Rush N Cash’s two affiliates ― Miz Sarang and One Cashing ― will also face suspension.

The four moneylenders allegedly reaped 3.06 billion won in illegal earnings by charging rates exceeding the ceiling. The number of unauthorized cases came to 61,827.

Gangnam Ward Office also referred the lenders to the police. The four lenders have a combined 41.3 percent of the private lending market.

When the suspension is handed down, the lenders are expected to take countermeasures such as filing an administrative suit.

The nation’s private lenders saw their outstanding loans snowball by more than 1 trillion won ($877 million) in the first six months of the year.

Outstanding loans extended by private lenders reached 8.63 trillion won at the end of June, up 14.2 percent from 7.56 trillion won at the end of December 2010, according to the FSS.

The number of borrowers in the industry also increased by 267,000 from about 2.2 million to 2.47 million during the period, the FSS said.

Credit-based lending accounts for 85.5 percent, or 7.34 trillion won, and the rest was collateralized lending worth 1.25 trillion won.

Credit-based outstanding loans increased by 16.9 percent, or 1.06 trillion won. Average borrowing per customer rose from 3.04 million won to 3.14 million won.

In the past, commercial banks did not cut off lending to customers as long as they had sufficient deposits.

But most banks recently set lending restrictions on borrowers with lower credit scores.

“When borrowers lose the chance to seek new loans in the banking sector until they pay their overdue debts, they have no choice but to resort to private lenders despite quite high interest rates,” an FSS official said.

Further, many students have been resorting to private lenders for college and living expenses, rekindling concerns over high debt among young people.

By Kim Yon-se (kys@heraldcorp.com)