FSS Warns: "Criminal Penalties for Illegal Loans Backed by Installment or Lease Vehicles"

FSS Issues Consumer Warning
Illegal Private Lending Surges Using Installment and Lease Vehicles as Collateral
Parking Fees Demanded, Annual Interest Rates Reach Up to 229%

The Financial Supervisory Service has issued a consumer warning classified as "caution" due to a surge in new types of illegal private lending practices, where lenders provide loans using installment or lease vehicles as collateral and subsequently charge parking fees and other costs, effectively collecting high interest rates.

On the 12th, ahead of the Lunar New Year holiday, the long-term parking lot at Incheon International Airport Terminal 2 is filled with travelers' cars. 2026.2.12 Photo by Kang Jinhyung

The Financial Supervisory Service stated on the 25th that it has recently received a series of reports regarding mutated forms of illegal private lending, in which lenders secure vehicles as collateral from debtors and collect interest rates that exceed the legal maximum. The agency urged financial consumers to exercise particular caution.

From January of this year through this month, a total of 12 such reports have been filed with the Financial Supervisory Service. By month, there was 1 case in January, 2 in March, and 1 in April, followed by 4 cases each in May and June, indicating a recent upward trend in reports.

These illegal lenders secured collateral by directly taking possession of vehicles such as motorcycles and passenger cars. In addition to the agreed interest, they demanded separate payments for parking fees, business trip fees, transportation costs, and commissions, resulting in interest rates that surpassed the legal maximum.

According to the Lending Business Act, any costs received by lenders in connection with lending, regardless of their names, are all considered interest. The loan amounts in these cases ranged from 2.5 million won to 30 million won. When upfront deductions, parking fees, and business trip fees were converted to interest, the annual rates ranged from 27% up to a maximum of 229%.

In one case, the lender provided a loan of 2.5 million won using a passenger car as collateral but deducted 40,000 won as upfront interest, 350,000 won as monthly parking fees, and 80,000 won as business trip and transportation fees, totaling 470,000 won. The borrower actually received only 2.03 million won, and when calculated as an annual interest rate, this amounted to 225.6%.

There were also cases where the collateral vehicle was used without the debtor's consent. In this process, either the value of the vehicle decreased or the debtor incurred fines for illegal parking and toll fees, but these costs were still borne by the debtor, the vehicle’s owner.

Illegal debt collection practices also occurred, exploiting the fact that the vehicles were under installment or lease. Lenders threatened debtors by saying they would notify the installment finance company or the leasing company about the collateral arrangement, implying that the debtor would face criminal charges.

Since lease vehicles are owned by the leasing company, they cannot, in principle, be offered as collateral. Similarly, if an installment vehicle is handed over to a lender without the consent of the installment finance company, both the concealment of collateral and obstruction of rights can result, making the debtor also subject to criminal punishment.

By age group, the largest number of victims were in their 30s (6 individuals), followed by 2 in their 60s, and 1 each in their 20s, 40s, and 50s, showing that victims spanned all age groups. Most victims resided in the metropolitan area—5 in Gyeonggi Province, 3 in Seoul, and 1 in Incheon—but there was also 1 victim each in Daegu, Gyeongnam, and Gwangju.

The Financial Supervisory Service explained that even registered lenders cannot charge interest rates exceeding 20% per year, and if the annual interest rate surpasses 60%, both the principal and interest become invalid. For reported cases with supporting evidence, the agency is taking steps to provide relief, such as appointing representatives for debtors and issuing invalidation certificates.

An official from the Financial Supervisory Service stated, "Regardless of the name, any costs required by lenders in connection with loans, such as parking fees, business trip fees, and commissions, are all considered interest," and added, "If you suspect illegal vehicle-backed loans, you should proactively report them to the Financial Supervisory Service or investigative authorities."

This content was produced with the assistance of AI translation services.