Myungnyun-dang, the franchise headquarters of Myungnyun Jinsa Galbi, has come under scrutiny after lending approximately 298.3 billion won ($223 million) at low interest rates to 14 loan companies owned by the chairman's family. The Fair Trade Commission (FTC) announced on September 28 that it would impose corrective orders and a fine of 10.472 billion won ($8 million) for these unfair support practices, and it will also file a complaint against Myungnyun-dang and Chairman Lee Jong-geun.
From December 2021 to April 2023, Myungnyun-dang lent a total of 298.3 billion won at interest rates of 2.3% or 4.6% to these companies, which then charged franchisees between 12% and 18% for startup funds, generating about 19.5 billion won ($15 million) in interest income.
The FTC calculated that the normal borrowing rates for these companies, based on data from 27 banks, savings banks, and capital firms, ranged from 8.73% to 13%. Had the normal rates been applied, the interest owed would have been approximately 31.6 billion won ($24 million), but only about 9.9 billion won ($7.5 million) was actually paid. The FTC determined that the difference of 21.7 billion won ($16.5 million) constituted unfair economic benefits.
FTC Commissioner Lee Soon-mi stated, "The interest income from the 14 loan companies was approximately 19.5 billion won, with an operating profit of about 5.6 billion won after expenses. The interest income received by Myungnyun-dang at a 4.6% rate was about 11.1 billion won based on the duration of interest-bearing loans."
Initially, from 2018 to the end of 2021, Myungnyun-dang operated an 'angel investment agreement' that provided interest-free startup funds to franchisees. However, it later shifted to interest-bearing loans, incorporating the family-owned loan companies into its funding structure.
These loan companies were established in stages: one in 2021, two in 2022, ten in 2023, and one in 2024. Most had no dedicated staff, and their CEOs were former or current employees of Myungnyun-dang or its affiliates. During the FTC investigation, it was found that one company had a shared office of just one square meter as its registered address near Myungnyun-dang's headquarters.
Commissioner Lee noted, "Franchisees did not actually go to a one-square-meter office for loan consultations; instead, Myungnyun-dang employees handled franchise consultations and loan agreements at Myungnyun-dang or Penple offices. The operational structure functioned as a single entity."
Myungnyun-dang also entered into agreements to repay principal amounts if franchisees failed to repay loans. When franchisees purchased essential items, they added an average of 36,000 to 38,000 won per box to repay the principal and interest, which Myungnyun-dang then settled with the loan companies. There were only eight cases where franchisees failed to repay their loans.
By 2025, the combined outstanding loan balance of the 14 companies ranked them 27th among 8,203 domestic loan companies, placing them in the top 0.33%.
However, the FTC clarified that it did not deem the 12% to 18% interest rates charged to franchisees as illegal. Commissioner Lee stated, "Interest rates from capital firms can also be 12% to 14%, so it is not definitive whether the rates were high or low. The focus of the unfair support violation is not solely on the fact that low-interest loans were provided to franchisees at high rates."
The FTC's concerns regarding franchisees were related to the provision of information. Myungnyun-dang failed to disclose that the startup fund loans were provided through related loan companies, marking 'no applicable items' in the information disclosure statement regarding credit provision and facilitation. They also did not adequately inform franchisees about the ownership of the loan companies by the chairman's family, the loan rates, repayment methods, and the connections between franchise agreements and loan contracts.
Commissioner Lee explained, "If this information had been disclosed, potential franchisees could have assessed whether to enter into franchise agreements and whether the loan rates were appropriate. The lack of sufficient information regarding the connections between franchise agreements, loan agreements, subrogation, and debt transfer was a significant issue."
Currently, the loan structure has been largely restructured. Following concerns raised during a National Assembly audit in November of last year, the 14 loan companies repaid the funds borrowed from Myungnyun-dang, and the interest rates applied to franchisees were reduced from 12% to 18% to 4.6%. New loans are currently on hold, with only existing loan receivables being managed.
The decision to file a complaint against Myungnyun-dang and Chairman Lee was influenced by the scale of the unfair support and the chairman's level of involvement. Commissioner Lee stated, "The amount provided at unfairly low rates was 298.3 billion won, and the support amount was also significant at 21.7 billion won. Chairman Lee was involved in creating the business model and determining the interest rates, and he acknowledged this involvement, which led to the complaint."
* This article has been translated by AI.
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