The prepaid funeral industry is facing intense regulatory pressure from the government and the National Assembly. This follows the passage of a revised installment sales law on August 20, which primarily targets credit extensions to controlling shareholders and related parties. Critics argue that the stringent financial regulations, which do not consider the unique nature of the industry, are stifling business operations.
According to industry sources on September 16, the revised installment sales law limits credit extensions to controlling shareholders and related parties to within 50% of the company's capital. Violators could face up to three years in prison or fines of up to 100 million won. The law also enhances the Fair Trade Commission's investigative powers and establishes joint investigation authority with financial regulators.
As of March this year, there were 11.31 million subscribers to prepaid installment sales, with total prepayments reaching 11.3544 trillion won. Prepaid funeral products are legally defined as 'prepaid installment sales,' where consumers contract for future services and pay in installments. However, the credit extension restrictions and joint investigations included in the revised law borrow regulatory measures from the financial industry, such as insurance and savings banks.
While the core of financial products lies in 'asset management returns and maintaining payment capacity,' prepaid funeral products depend on whether prepayments are fully secured until the consumer receives the service (performance guarantee). The industry is concerned that transplanting financial soundness indicators could shift the focus of regulation from protecting consumer prepayments to controlling corporate governance.
As of the first quarter of this year, there are 76 companies actively operating in the prepaid installment sales sector, and the overall market remains stable. Instances of consumer harm highlighted during national audits have primarily focused on issues related to individual companies, such as capital erosion or opaque financial transactions.
In the past year, seven comprehensive regulatory bills have been introduced in the National Assembly, addressing issues such as setting lending limits, establishing an integrated information system, and mandatory notifications in the event of business closures. The generalization of individual companies' governance risk responses into a 'preemptive total regulation' for the entire industry has resulted in increased compliance costs for businesses that are properly securing prepayments.
Experts are proposing a 'differentiated risk rating system' as an alternative. This system would categorize businesses into three to four grades based on indicators such as prepayment security ratios, capital erosion status, the proportion of transactions with affiliates, and consumer dispute resolution rates. They argue for concentrated supervision of higher-risk grades while granting autonomy for new service development and product diversification to businesses that have consistently secured prepayments.
An industry representative stated, "The first issue to address in prepaid funeral industry regulation is not the intensity but the classification. The indicators established in the enforcement decree that the Fair Trade Commission will prepare should not merely serve as monitoring tools but should provide the basis for graded incentives, allowing regulation and industry promotion to harmonize."
* This article has been translated by AI.
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