A coalition of civil groups warns of escalating debt cycles, coercive collection tactics, and ineffective law enforcement in South Korea’s illicit private lending market
A growing wave of illegal high-interest lending in South Korea is leaving young borrowers trapped in cycles of debt and fear.
A recent investigation by a coalition of civic groups reveals that some underground lenders charge borrowers effective annual interest rates of over 15,000 percent, using anonymous chat apps and blackmail tactics to keep victims paying indefinitely.
The findings were presented this week by Financial Consumer Solidarity, People’s Solidarity for Participatory Democracy, and Rolling Jubilee Korea — a nonprofit that supports debt relief. At a press conference in Seoul on Monday, they shared results from the Bulbul Center, a newly launched reporting hub that analyzed 65 cases of victims in their 20s and 30s between March and April.
These illegal lenders typically operate through open chat rooms on apps like KakaoTalk. Victims are asked to hand over full contact lists from their phones as collateral. When payments fall behind, lenders threaten to notify the borrower’s friends, coworkers or family — sometimes actually following through.
“I honestly wondered if dying would be the only way to make it stop,” said one 28-year-old victim during the press conference. They had borrowed 8.8 million won, paid back 39.71 million won ($28,000), and were still being chased for over 10 million won more.
On average, victims borrowed 10.36 million won but were told to repay 16.42 million won. Despite already repaying more than they originally borrowed, most faced ongoing demands for further interest.
The loans, often structured on a weekly repayment cycle, reached effective annual interest rates of 15,248 percent — more than 760 times South Korea’s legal maximum of 20 percent.
Each borrower used an average of 13 different loans, and some had over 50 at once. When they could not repay, lenders introduced them to others in the same illegal network, creating a self-perpetuating chain of debt. More than half of the victims were already struggling with formal loans and spending over 70 percent of their income on repayments.
Police, the report noted, are often unable — or unwilling — to investigate. Many victims who tried to file complaints were told, “There’s nothing we can do,” or were dismissed outright due to the anonymous nature of the lenders and their constantly changing bank accounts. These “borrowed-name” accounts make money trail tracking nearly impossible, and victims say fear of retaliation stops many from speaking up.
To make matters worse, scam “solution firms” have sprung up, claiming to help borrowers get out of illegal debt. In reality, many charge steep upfront fees and do little or nothing, sometimes even resorting to stronger collection tactics than the original lenders.
The civic groups behind the Bulbul Center demand urgent legal reforms: stricter enforcement against illegal lenders, improved protection systems for victims and real-time tracking of fraudulent bank accounts. They have also criticized a recent government proposal to loosen penalties for high-interest loans, calling it a dangerous move that weakens protections when they are needed most.
“This isn’t just about money,” said a spokesperson from Financial Consumer Solidarity. “It’s a systemic human rights issue. The state must protect people from being terrorized over small loans.”
mjh@heraldcorp.com
