The method of determining whether advance interest calculated by the credit service provider in advance exceeds the limited interest rate prescribed by the former Act on Registration of Credit Business and Protection of Finance Users, and, as a result, if the interest rate of advance interest does not exceed the limited interest rate, the loan principal that the debtor has to pay at the due date.

Article 8(3) of the former Act on Registration of Credit Business and Protection of Finance Users (amended by Act No. 7428, Mar. 31, 2005; hereinafter “former Credit Business Act”) provides that “The prior interest rate exceeds the maximum interest rate stipulated under the former Act on Registration of Credit Business and Protection of Finance Users shall be determined on the basis of the amount actually received by the debtor, excluding the prior interest deduction amount. Furthermore, if the prior interest rate does not exceed the maximum interest rate as a result of such determination, the prior interest deduction is valid as the payment of the agreed interest, and it does not affect the interpretation of the former Act on Registration of Credit Business, etc. and Protection of Finance Users (amended by Act No. 9428, Jan. 21, 2009; hereinafter “former Credit Business Act”). Thus, if the prior interest rate does not exceed the maximum interest rate, the prior interest rate should not be determined on the principal of the loan which the debtor should have to pay during the due date of repayment (Article 5(1)4 of the same Act).”

Article 8 of the former Act on Registration of Credit Business and Protection of Finance Users (amended by Act No. 7428 of Mar. 31, 2005) (see current Article 8 of the Act on Registration of Credit Business, etc. and Protection of Finance Users), Article 5 (3) of the former Enforcement Decree of the Act on Registration of Credit Business and Protection of Finance Users (amended by Presidential Decree No. 20313 of Oct. 4, 2007) (see current Article 5 (2) of the Enforcement Decree of the Act on Registration of Credit Business, etc. and Protection of Finance Users), Article 8 (5) of the Act on Registration of Credit Business, etc. and Protection of Finance Users

Supreme Court Decision 93Da23459 Decided November 23, 1993 (Gong1994Sang, 177) Supreme Court Decision 2010Do1258 Decided March 15, 2012 (Gong2012Sang, 610)

Plaintiff

Defendant

Seoul Central District Court Decision 2012Na3981, 3998 decided May 18, 2012

The appeal is dismissed. The costs of appeal are assessed against the Defendant (Counterclaim Plaintiff).

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed and supplemental appellate briefs not timely filed).

1. (1) Article 8 (1) of the former Act on the Registration of Credit Business and the Protection of Finance Users (amended by Act No. 7428 of Mar. 31, 2005; hereinafter “former Credit Business Act”) provides that “Where a credit service provider lends a loan to an individual or a small-scale corporation prescribed by the Presidential Decree, the interest rate for up to the amount prescribed by the Presidential Decree (based on the one-time loan amount) within the limit of 70/100 per annum shall not exceed that prescribed by the Presidential Decree.” Paragraph (2) provides that “in calculating the interest rate under the provisions of paragraph (1), the interest rate under the provisions of paragraph (1) shall not exceed 10/100 per annum.” Paragraph (3) provides that “Where a credit service provider has made a loan to an individual or a small-scale corporation, the interest rate shall not exceed 6/100 per annum.” Paragraph (1) provides that “Where a credit service provider violates the provisions of paragraph (1) of the same Article, the interest rate shall not be more than 6/10/10.

(2) The purport of Article 8(2) of the former Credit Business Act is to prevent evasion of the law used by a credit service provider as a means to collect money from an obligor under the pretext of honorariums, discounts, fees, mutual aid funds, interest in advance, interest in advance, etc. Thus, even if the name of a financial brokerage fee is the name of a loan, if it is related to a lending of money between a credit service provider and an obligor and can be seen as a consideration for a lending of money, it shall be regarded as interest. Therefore, the deduction of a credit service provider from a loan in advance constitutes a mutual aid with the prior interest (see, e.g., Supreme Court Decisions 2009Do11576, May 13, 2010; 2010Do1258, Mar. 15, 2012).

In addition, whether pre-paid interest rate exceeds the pre-paid interest rate under the former Credit Business Act, excluding the pre-paid interest deduction amount, should be determined on the basis of the interest that the debtor actually received from the loan to the due date (see Supreme Court Decision 93Da23459, Nov. 23, 1993, etc.). Furthermore, in cases where the interest rate of the pre-paid interest does not exceed the limited interest rate as a result of such determination, Article 8(3) of the former Credit Business Act invalidating the interest agreement on the excess interest rate does not apply to the case where the interest rate does not exceed the limited interest rate, and thus, the pre-paid interest deduction is valid as the payment of the interest agreed by the parties concerned, and the loan principal agreed between the parties prior to the deduction and the debtor should be repaid at the due date (see Supreme Court Decision 2006Da19443, Aug. 25, 2006). 200 newly established and amended by Act No. 13841, Jan. 1, 2009>

B. According to the facts established by the court below, the plaintiff (the counter-party defendant; hereinafter "the plaintiff") who is a credit service provider (the "the plaintiff") made a loan of KRW 10,000,000 to the defendant (the plaintiff Lessee; hereinafter "the defendant") on January 17, 2005, with the rate of KRW 6 months for the first three months, 3% for the first three months, and 4% for the second three months (the interest rate of KRW 300,000 for the previous two months, plus 1%) for the subsequent three months, and on the same day after deducting the amount of KRW 50,000 for the first two months, 30,000 for the first two months, and 500,000 for the financial brokerage fees from the defendant on the same day.

Examining the above facts in light of the legal principles as seen earlier, KRW 30,00, KRW 500,000, KRW 1,300,000, and KRW 500,000,000, and KRW 1,300,000,000 constitute interest as stipulated under Article 8(2) of the former Credit Business Act. The credit service provider’s deduction from the loan in advance constitutes a prior-interest deduction; however, the prior-paid interest amounting to KRW 1,30,000 does not exceed the amount calculated based on the interest rate of KRW 8,70,00,000, which was actually paid by the Defendant based on the above amount of KRW 66/10,000 per annum under the former Credit Business Act. Thus, there is no part of interest contract which becomes null and void under Article 8(3) of the former Credit Business Act, and accordingly, the principal of this case that the Defendant should have repaid to the Plaintiff at the maturity of payment, barring any special circumstances.

C. Nevertheless, the lower court determined otherwise, that only KRW 300,00,000, total of KRW 500,000, and KRW 800,000,000, excluding KRW 500,000,000, constitute interest as stipulated in Article 8(2) of the former Credit Business Act, and that the loan principal of this case is immediately the principal of the agreement, without examining whether it does not exceed the interest rate under the former Credit Business Act, after deducting the above KRW 800,000,000 from KRW 10,000,000,000 from the agreed principal. In so doing, the lower court erred by misapprehending the legal doctrine on deemed interest as stipulated in the former Credit Business Act or the former Credit Business Act and the calculation of the loan principal, thereby adversely affecting the conclusion of the judgment.

However, as seen above, when deeming the loan principal of this case to be KRW 10,00,00, the principal and interest to be paid to the Plaintiff by the Defendant calculated by the relevant legal principles are larger than the amount calculated by the lower court on the premise that the lower court erroneously judged the loan principal of this case to be KRW 9,20,000,00. Therefore, the lower court cannot be ruled disadvantageously to the Defendant, who is the appellant under the principle of the prohibition of disadvantageous alteration in this case that only the Defendant appealed, and therefore, it cannot be reversed on the ground of

2. The Interest Limitation Act was repealed by Act No. 5507 on January 13, 1998, and was not enacted on March 29, 2007 by Act No. 8322 on March 29, 2007. In addition, Article 7 of the Act on the Interest Limitation provides that the Interest Limitation Act does not apply to credit business for which authorization, permission, or registration has been completed pursuant to other Acts until it reaches the current law.

The lower court, based on adopted evidence, recognized the Plaintiff as a credit service provider that completed the registration of credit business under the former Credit Business Act, and calculated damages for delay by applying the limited interest rate provided for in the former Credit Business Act or the former Credit Business Act, not the maximum interest rate provided for in the Interest Limitation Act. In light of the record, the lower court’s measures are based on the content of the above Act. In so doing, it did not err by misapprehending the legal doctrine on the scope of application of the maximum interest rate provided for in the Interest Limitation Act, contrary to what is alleged in the ground

3. The court below acknowledged, based on the adopted evidence, that the Defendant transferred the claim for the refund of the deposit to the Nonparty to the Plaintiff in order to guarantee the Plaintiff’s obligation for the instant loan to the Plaintiff on January 17, 2005, and rejected the Defendant’s assertion that the said credit transfer contract is null and void on the grounds of various circumstances as indicated in its reasoning, on the grounds that such circumstances do not constitute the grounds for invalidation of the said credit transfer contract and there is no other evidence

Examining the reasoning of the lower judgment in light of the evidence duly admitted, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence relating to the grounds of appeal or by misapprehending the relevant legal doctrine.

4. The remaining grounds of appeal are rejected as they do not constitute legitimate grounds of appeal under Articles 423 and 424 of the Civil Procedure Act.

5. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Shin Young-chul (Presiding Justice)