Financial Authorities Uncover Franchise Headquarters Misusing Policy Funds and Offering High-Interest Loans

Financial authorities have investigated cases where franchise headquarters improperly used government support funds and provided high-interest loans to franchisees. The Financial Services Commission (FSC) and the Fair Trade Commission (FTC) announced the results of their probe into business structures combining franchise operations with lending, revealing three violations, including those by 'Myungnyundang,' and outlining plans for system improvements.

The investigation found instances where funds procured at low interest rates from policy financial institutions were lent to franchisees at high rates through related-party lending companies. Myungnyundang, the operator of 'Myungnyun Jin Sa Galbi,' borrowed approximately 89.9 billion KRW from policy financial institutions at annual rates of 3-6% and lent it to 13 related-party lending firms established by its major shareholder. These lending companies then issued loans totaling about 145.1 billion KRW to Myungnyun Jin Sa Galbi franchisees, reportedly for interior renovation costs, applying high annual interest rates of 12-18%. Myungnyundang's affiliated lending companies were suspected of 'fragmented registration' to keep their total assets and outstanding loan balances below the thresholds required for FSC registration. Franchisees paid their principal and interest on these loans, along with payments for essential supplies like meat, to the headquarters, which then repaid the lending companies. The Industrial Bank of Korea fully recovered the policy loans from Myungnyundang in April 2026.

Financial authorities will restrict the use of policy funds by franchise headquarters that offer high-interest loans to their franchisees. The system will be revised to require disclosure of loan interest rates, repayment methods, lender registration numbers, and relationships with the franchise headquarters in the information disclosure statement before franchise agreements are signed. The FSC plans to expand asset limits to locally registered lenders and is pushing for revisions to the Act on Private Lending Business to allow the Financial Supervisory Service direct inspection in cases of suspected fragmented registration. A director from the FSC's Household Finance Division stated that measures would be swiftly implemented to ensure policy funds are used for their intended purposes and that franchisees are not harmed by unreasonable structures.