South Korea court determines that there is no interest rate limit on crypto loans

A court in South Korea has ruled that a legal limit on interest does not apply to Bitcoin or other cryptocurrencies because they are not considered “money,” local media reported Wednesday.

The Seoul Central District Court ruled last month in favor of Bitcoin management firm A in a lawsuit in which A filed a civil suit against firm B claiming Bitcoin that B owes, according to Maeil Business News. The actual names of the companies involved in the case were not disclosed.

In October 2020, the plaintiff company and firm B signed an agreement whereby A lent B 30 Bitcoins (currently worth US$604,320) to be returned in six months with monthly interest payments.

Company A filed the lawsuit after the company in debt did not return the borrowed cryptocurrencies after the agreed settlement date. The firms had agreed a monthly interest rate of 5%, which converts to an annual interest rate of 60%.

However, B claimed that A broke the two laws, the Interest Limitation Act and the Act on the Registration of Credit Businesses and the Protection of Financial Users, which limit all loan interest to an annual interest rate of 24%.

See related article: South Korea’s investigation into Do Kwon ‘unfair’: Terraform Labs

In the ruling, the judiciary decided that the current laws do not apply to the agreement between the companies.

“[The two acts] limit the highest interest rate on money loans, but in this case the deal is Bitcoin, not money,” it says, according to Maeil Business.

The court ordered Company B to either return the Bitcoin or the amount of money converted based on the Bitcoin market price at the end of the hearing. The court did not explicitly mention the amount of stakeholders owed by Company B, according to the media reports.

The court decision follows growing movement among South Korean authorities to classify and regulate cryptocurrencies.

In the ongoing investigation into the collapse of the South Korea-born Terra-LUNA crypto project, local prosecutors issued an arrest warrant last month for Terra founder and CEO Do Kwon on the grounds that Luna cryptocurrency is an investment security.

See related article: S.Korea financial regulator: crypto may be subject to capital market law

The allegation, which is one of the first occasions where a local government has labeled crypto as a security, puts Kwon and his company, Terraform Labs, in violation of the Capital Markets Act, an unregistered financial contract service.

Following the arrest warrant, Lee Bok-hyun, governor of South Korea’s Financial Supervisory Service (FSS), said at a press conference that certain cryptocurrencies can be seen as securities.

Meanwhile, the country is preparing a new cryptocurrency regulatory framework called the “Digital Asset Basic Act”, which aims to define and institutionalize cryptocurrencies into two categories: security and non-security tokens.