The financial district of Yeouido in Seoul. (Yonhap).
SEOUL, March 2 (Korea Bizwire) — The Constitutional Court has ruled that the Interest Limitation Act that criminally punishes lenders charging higher interest rates than the legally allowed maximum rate of 20 percent a year is constitutional, officials said Thursday.
The nine-member court unanimously made the decision, rejecting a petition filed by a person who took about 93 million won (US$71,155) in interest in a span of 11 months on a loan of 180 million won to a borrower in 2018.
The interest the lender charged translates into an annual interest rate of over 50 percent.
Under the Interest Limitation Act, the highest legal interest rate currently stands at 20 percent after it was reduced from 24 percent in 2021. A violation of the law could lead to a prison sentence of up to a year or a fine of 10 million won.
The lender filed the petition for a review of the law’s constitutionality after getting a guilty sentence for charging high interest rates, saying the law unfairly restricts basic rights and its criminal punishment is excessively severe.
“The law seeks to set up the minimum social safety device needed to protect the livelihood of the public by prescribing appropriate limits to interest rates,” the court said, upholding the law’s constitutionality.
The court also rejected the petitioner’s claim that the law’s Article 2 mandating the cancellation of interest charged above the legal cap makes separate criminal punishment unnecessary.
“Considering the reality of growing damage cases and reports from illegal private financing, canceling excessively charged interest alone cannot prevent the damage,” the court noted.
The case marks the Constitutional Court’s first decision upholding the constitutionality of the Interest Limitation Act.
(Yonhap)
