Illegal private lending, which lends money to underprivileged people who have difficulty obtaining loans from the formal financial sector and charges thousands of percent in interest while engaging in ruthless collection practices, is still rampant. The forms of illegal private lending have become more organized and remote, becoming increasingly cruel. In September of last year, the death of a woman in her 30s, who was raising her kindergarten daughter alone and suffered from illegal collection, sparked public outrage. ChosunBiz examined the current state of illegal private lending, the suffering experienced by vulnerable groups, and possible alternatives to eliminate it. [Editor’s note]
A person in their 20s who worked with illegal loan sharks noted, “All my peers in their 20s used loans because of gambling. They also faced debt collections and, unable to cope, joined illegal loan shark organizations to reduce their debts. The more collections they do, the faster they can repay their debts, which increases their greed, and they begin to torment others more ruthlessly than they themselves experienced. It’s beyond imagination.”
Lee Geon-woo, a pseudonym for a man in his 20s who previously worked for an illegal loan shark organization, remarked, “Illegal collection doesn’t end even if someone dies.” He explained that one reason illegal collections have become so brutal is that individuals in their 20s, referred to as 'MZ gangs', are transitioning from victims to perpetrators. To repay debts incurred from gambling and nightlife, they work in illegal loan shark organizations, inflicting suffering on new victims while tacking on 'interest' to the pain they endured.
A former leader of an illegal loan shark organization explained the process by which MZ gangs become loan sharks: “When they gamble and run out of money, they take out loans, thinking they can earn and repay quickly. Ultimately, if they can’t handle the interest, they find themselves begging to be assigned work.” He added, “Not just anyone can be made to work; the person must be judged not to run away before they are involved in crime.”
Geon-woo confessed that his reason for joining the illegal loan shark organization was due to his own borrowing. He faced a devastating divorce in 2016 after borrowing through a method colloquially known as ‘20 to 40’. This method involved a repetitive cycle of ‘200,000 won loan, 400,000 won repayment’ and ‘400,000 won loan, 800,000 won repayment’ on a weekly basis, causing debts to skyrocket. After a few cycles, the interest rate could rise into the thousands of percent. Loan sharks used hard tactics to coerce victims into paying interest, such as demanding more if repayment was even a second late. Geon-woo recalled, “When I closed my eyes and opened them again, I was borrowing from ten different places.”
With no way to deal with his skyrocketing debts, Geon-woo began receiving threats. The target was his daughter, his greatest vulnerability. Organization members called the kindergarten his daughter attended, making nonsensical claims such as, “(Geon-woo’s daughter) is selling her body” and “she had inappropriate relations with her brother,” even threatening the kindergarten teachers. These harassments escalated to his relatives and their children.
Ultimately, Geon-woo pleaded with the organization to allow him to work and repay his debts, starting to live and learn while working at a place provided by the organization. The other people in their 20s there were also unable to resolve their debts. Their reasons for borrowing varied, but nine out of ten were due to illegal gambling such as betting and baccarat.
The organization promised to return 70,000 won on collections of 200,000 won. Therefore, if someone collected from 10 individuals in a day, that would be 700,000 won, and for 20 individuals, it would be 1.4 million won. Those who collected from 25 individuals in just one day would receive a cash bonus of 2 million won from the leader, who would say, “Great job.”
The better the results, the faster they could repay debts, which inevitably intensified the threats and harassment. Geon-woo learned from a mentor for four days and noted that this mentor visited a funeral after hearing that a debtor had died, demanding to collect the debt from the grieving family in the form of condolence money. Geon-woo stated, “Isn’t this what can happen when one is consumed by evil?”
B, who worked for another illegal loan shark organization for two years, said, “Most people think about their own lives first and prioritize eliminating their own debts,” adding, “If collections aren’t made, just their debt’s interest increases, so it’s only natural they become ruthless.” He remarked, “Especially those in their 20s have no experience in collections, so they can only think of coercive methods,” noting that he witnessed several victims making extreme choices like jumping or using charcoal to end their lives.
The vicious cycle of illegal collection victims becoming perpetrators and thereby generating new victims is ongoing. According to the Korean National Police Agency, the number of reports of illegal private lending received by the police from January to October last year reached 2,789, a 58% increase compared to the same period the previous year (1,675 cases). However, considering cases where victims could not report due to threats, the actual number of victims is estimated to be higher than the statistics indicate.
To evade police tracking, illegal loan shark organizations are characterized by being organized into teams that do not know each other’s identities, including recruiting teams utilizing social media, collection teams for recovering principal and interest, and delivery teams for transferring cash. Since all processes of illegal loan lending operate through disposable phones and accounts, tracking is also quite difficult. B explained, “One team leader manages 3 to 10 team members, and team members cannot know each other’s real names or contact details,” noting that even team leaders do not share their contact numbers with each other, only communicating with the ‘Director General’ managing the organization.
Identifying individuals is not easy, making police investigations challenging. Former loan sharks met by ChosunBiz said the following: “Loan sharks believe they won’t get caught by the police.” “Victims can’t get help even if they go to the police.” “Investigations are often impossible, leading to victims being sent back.”
Moreover, the notion that 'first offenders will only receive fines' has become a common belief among illegal loan sharks, reflecting the weak level of punishment. According to the Supreme Court, out of 91 first-instance verdicts regarding violations of the debt collection law from January to October last year, only 18 cases (19.8%) resulted in imprisonment, while fines were imposed in 47 cases (51.6%), exceeding half. Among 287 first-instance verdicts for violating the loan business law last year, 142 cases (49.5%) received suspended sentences, while fines were given in 81 cases (28.2%), and imprisonment was merely 59 cases (20.6%).
Professor Yoon Ho of Dongguk University’s Police Administration Department stated, “Illegal loans are often made via disposable accounts, causing delays in police investigations. A fundamental solution would be to reform the system to eliminate disposable accounts rather than just refining investigation techniques.”