By Kang Seung-woo
Korea’s top two private money lenders are likely to be suspended for breaching rules on interest rates.
The Gangnam District Office said Tuesday, it has sent an advance notice to halt the operations of four capital firms, including A&P Financial and Sanwa Financial, both from Japan. Well-known Rush N Cash is the private money lending wing of A&P Financial, while Sanwa Financial is known by its brand Sanwa Money. Since their headquarters are located in the Gangnam area, the district office has the authority to rule on the suspensions.
The private money lenders can submit their response to the prior notice by early next year.
The two other players likely to be suspended are A&P Financial’s two affiliates, Won Cashing and Miz Sarang.
“After hearing the opinions of the four money lenders, we will give the final word,” said an official of the district office.
To make the lenders’ situation worse, they have been charged with loan abuse.
The administrative measure came after the four private money lenders were caught for their violations of statutory interest rate ceilings by the Financial Supervisory Service (FSS) last month.
According to the financial watchdog, the government lowered the maximum annual interest rate private lenders can charge from 44 percent to 39 percent in June this year. However, the four lenders charged their previous rates of between 44 and 49 percent in renewing 143.6 billion won ($123.06 million) worth of loans since the rule change. This allowed the lenders a combined 3.06 billion won in “illegal” profits, according to the FSS.
According to local laws, a private lender can be given a six-month business suspension for setting interest rates above the legal limit and can lose its license for a second offense.
As for criminal prosecution, a violator could be punished by either a fine of up to 30 million won or a prison sentence of up to three years.
According to latest figures from the FSS, outstanding loans in the Korean private lending market stood at 7.5 trillion won for 1.15 million borrowers as of the end of the first half of the year and about 40 percent of the total lending, at 3.56 trillion won, came from the four Japanese money lenders.
Rush N Cash led the industry with 1.98 trillion won loaned to 558,200 borrowers and Sanwa Money, invested in by Japan-based Sanwa Group, is ranked second with 1.17 trillion won lent to 443,400. One Cashing and Miz Sarang tallied 202.3 billion won and 198.9 billion won, respectively, in loans to 83,800 and 70,600 borrowers.
Refusing to surrender to the FSS’s investigation results, the lenders are expected to file for administrative litigation when their business suspension is settled.
In 2002, when the law for loan businesses was enacted, Japanese capital companies rushed to Korea with money raised cheaply from their parent companies and dominated local private lenders, many of whom had less than 10 billion won in assets. They stepped in for savings banks that then dealt with microcredit but converted to project financing (PF) to bulk themselves up.