[Executive Summary]

• In a recent court ruling of a case in which Cha & Kwon Law Offices represented the plaintiff as attorneys at law, the Seoul Central District Court ruled that a loan agreement of virtual assets, including Bitcoin, is not subject to the application of maximum interest rate limit set out by Interest Limitation Act and Act on Registration of Credit Business and Protection of Finance. Also, the Court has seen Bitcoin as something similar to securities that have certain economical value.

On September 30th, in the court ruling of a case in which Cha & Kwon Law Offices represented the plaintiff as attorneys at law, the Seoul Central District Court ruled that a loan agreement of virtual assets, including Bitcoin, is not subject to the application of Interest Limitation Act and Act on Registration of Credit Business and Protection of Finance Users (“Act on Credit Business”).

In the case, Cha & Kwon Law Offices represented the plaintiff, a Fintech Company (“A”) that requested the redemption of Bitcoin from the defendant (“B”) according to the ‘virtual assets loan agreement’ (“Agreement”) made between “A” and “B” in October 2020, in which “A” loaned 30 Bitcoins to “B” for 6 months. In the ruling of the loan claim litigation, the Court ruled in favor of the plaintiff “A” and ordered that the defendant “B” shall return/transfer 30 Bitcoins and additional amounts of Bitcoin calculated according to the interest rate stipulated in the Agreement.

During the trial process, “B” claimed that the interest rate of the Agreement (originally 5% monthly and 60% annually) far exceeded the maximum interest rate stipulated by the law at the time, which was 24% annually. Based on this claim, “B” further argued that since the interest rate exceeding the maximum interest rate stipulated by the laws such as the Interest Limitation Act and the Act on Credit Business is unenforceable.

However, the Court ruled that the limitation of maximum interest rate under the Interest Limitation Act and the Act on Credit Business apply only to ‘cash loans’ and ‘cash credit businesses’, and that the since the object of the Agreement, Bitcoin, is not cash, the Interest Limitation Act and the Act on Credit Business do not apply in this case.

Also, the Court ruled that in case “B” is unable to repay/transfer Bitcoin, “B” should pay “A” an amount of cash converted on the basis of the market price of Bitcoin on the day of the conclusion of arguments. Considering that foreign currencies and securities are calculated on the basis of the market price on the day of the conclusion of arguments in a civil litigation procedure, it can be interpreted that the Court has seen Bitcoin as something similar to securities, having economical value.

As of now, the court deems that virtual asset loans do not fall under the laws that limit the maximum interest rate for cash loan agreements. Since the judiciary does not currently treat virtual assets as cash, even an interest rate for a virtual asset loan that exceeds the maximum limit stated in the laws is still enforceable.