Hello. This is Lee Young-kyung, attorney at Cheongchul Law Firm.

On May 10, 2026, the Korea Fair Trade Commission (KFTC) and the Financial Services Commission (FSC) jointly announced "Measures to Address High-Interest Predatory Lending by Franchisors Using Policy Funds." This announcement is a follow-up response to the issue raised by cases such as Myungryundang Co., Ltd. (operator of Myungryun Jinsa Galbi), where some franchisors received low-interest policy funds from state-run banks and provided high-interest loans to franchisees. It is a comprehensive measure designed to institutionally block the side effects of business structures combining franchising and lending. This column is based on the KFTC press release, and please be advised that the content may change in subsequent legislative and administrative measures.

1. Background – Structural Problems Revealed in the Myungryun Jinsa Galbi Case

Myungryundang Co., Ltd. used hundreds of billions of won in policy funds at low interest rates of 3-6% per year from policy financial institutions including the Korea Development Bank, while lending approximately KRW 89.9 billion to 14 specially-related lending companies established by the major shareholder. These lenders in turn provided high-interest loans at 12-18% per year to Myungryun Jinsa Galbi franchisees under the pretext of covering interior costs. According to the press release, a total of KRW 145.1 billion in loans was executed for Myungryun Jinsa Galbi franchisees, and KRW 86.8 billion for franchisees of other brands. In addition, the 14 specially-related lenders were suspected of "split registration" to evade FSS inspection and supervision, by managing total assets below KRW 10 billion to avoid FSC registration requirements (total assets of KRW 10 billion and lending balance of KRW 5 billion).

2. Survey Results (Oct. 2025 – Jan. 2026)

The KFTC and FSC conducted a survey of 110 franchisors using policy financial institution loans (Korea Development Bank, IBK, Korea Credit Guarantee Fund, KOTEC) and 498 franchisors with sales of KRW 10 billion or more. The survey identified 3 cases where franchisors receiving policy fund loans handled high-interest loans to franchisees, plus 1 other case. A total of 18 franchisors provided direct or indirect loans to franchisees, but the other 15 (excluding the 3 high-interest cases) had low loan utilization ratios and total loan amounts under KRW 1 billion, so the issues were judged not to be significant. In another case, Franchisor A used KRW 1.2 billion at a 4% annual rate with a Korea Credit Guarantee Fund guarantee, while providing KRW 11.4 billion in loans at 13% annually to 112 franchisees together with a specially-related lending company.

3. Four Identified Problems

The four problems identified by the KFTC and FSC in this survey are as follows.

(1) Low-interest policy funds for franchisors may effectively be used for high-interest lending targeting franchisees; (2) Core information such as interest rates and repayment methods of franchise-linked loans is not sufficiently provided to prospective franchisees during contract execution; (3) In the indirect repayment structure where franchisors add loan principal and interest to sales or essential supply payments and remit them to lenders or financial companies, franchisees as borrowers find it difficult to accurately track repayment status, and combined with sales-linked repayment methods, the burden of lump-sum repayment at maturity expands, working unfavorably for borrowers; (4) The "split registration" of lenders has been used as a workaround to evade financial authorities' management and supervision.

4. Four Major Response Measures by KFTC and FSC

A. Strengthening Policy Loan Management for Franchisors (FSC)

Policy financial institutions (Korea Development Bank, IBK, Korea Credit Guarantee Fund, KOTEC) will check the holdings, loan conditions, and changes of loans receivable from franchisees by the headquarters and affiliated companies whenever conducting new loan or guarantee reviews, checking misuse of funds, and at maturity extension. For new policy loans and guarantees, written confirmation by the CEO will be required. If inappropriate lending such as high-interest loans is identified, new policy loans and guarantees will be restricted, and existing loans will be subject to maturity extension restrictions or installment repayment.

B. Expanding Information Disclosure on Direct/Indirect Loans Provided by Franchisors (KFTC)

To enable prospective franchisees to sufficiently review credit provision or arrangement conditions from the business preparation stage, the Franchise Business Act Enforcement Decree and related notifications will be amended to reform the disclosure document system. Credit provision and arrangement details will be required to be classified into the franchise opening stage and operation stage, and additional disclosure items such as loan interest rates, repayment methods and conditions, lender's lending business registration number, and the relationship between the franchisor and credit provider will be included.

C. Preventing Franchisee Damage from Special Repayment Structures (KFTC and FSC)

Financial companies will be guided to directly notify franchisees who are borrowers of principal and interest payment status, so that franchisees can immediately recognize when franchisors fail to make payments. In addition, inspections and reorganization of lending agreements combined with sales-linked repayment methods will be conducted, and amendments to the Franchise Business Act will be pursued to allow punitive damages of up to three times the loss for restrictive transactions involving non-essential and non-uniform products.

D. Preventing "Split Registration" of Lending Businesses (FSC)

To eliminate regulatory arbitrage between FSC-registered lenders and local government-registered lenders, the total asset limit regulation (within 10 times of equity capital) currently applied only to FSC-registered lenders will be expanded to local government-registered lenders. Amendments to the Lending Business Act will be pursued so that the FSS can directly inspect local government-registered lenders when split registration is suspected. Meanwhile, under the revised Lending Business Act effective July 22, 2025, operating multiple lending businesses by one person is already prohibited by law.

5. Future Plans and Implications

The KFTC and FSC will swiftly conduct follow-up investigations on the franchisors identified in the survey, and will take strict action if violations of laws such as the Franchise Business Act are confirmed. In cases of suspected violations of the Lending Business Act such as unregistered lending (brokerage), they will cooperate with the Seoul Metropolitan Civil Affairs Judicial Police Bureau, and to recover damages for franchisees, they will encourage dispute mediation and, if necessary, the Korea Fair Trade Mediation Agency will support part of civil litigation costs (up to KRW 5 million).

This announcement is significant in that it directly addresses the business structure where franchisors provide direct or indirect loans to franchisees or arrange and link financial company loans, and that institutional reforms are being pursued simultaneously across four axes: policy fund management, information disclosure, repayment structure, and lending business regulation. Franchisors will need to thoroughly re-examine their loan and finance linkage structures combined with franchise business, supplement disclosure document items, and reorganize sales-linked repayment and essential supply payment-linked repayment structures from the perspective of risk of violating the Franchise Business Act and Lending Business Act.

Cheongchul Law Firm is composed of attorneys with extensive advisory, litigation, and KFTC investigation response experience representing franchisors and franchisees in distribution sector laws including the Franchise Business Act, Large-scale Distribution Business Act, and Agency Act. If you have questions about franchise structure review, disclosure document maintenance, KFTC investigation response, or franchisee damage relief, please do not hesitate to contact Cheongchul Law Firm.