Prepaid funeral companies and other installment service providers will be restricted to lending no more than 50% of their capital to controlling shareholders and related parties. Additionally, a unified information system will be established to allow approximately 11 million prepaid funeral subscribers to verify their payments and compensation procedures all at once.
The Fair Trade Commission announced that the amendment to the installment sales law passed the National Assembly on August 20.
There are about 11 million subscribers to prepaid funeral services in South Korea, with total advance payments reaching 11.3 trillion won.
The revised law limits the total amount of credit that prepaid funeral companies can extend to controlling shareholders and related parties to 50% of their capital. A controlling shareholder is defined as the largest shareholder holding more than 30% of the total issued shares, while related parties include spouses, affiliated companies, and executives.
Credit extensions include not only loans but also guarantees and the purchase of securities for financial support. Those who exceed the credit limit may face up to three years in prison or fines of up to 100 million won.
Even transactions within the limit require the consent of all registered executives or a unanimous board resolution if the amount exceeds a threshold set by presidential decree. After such transactions, companies must report to the Fair Trade Commission and disclose the information on their websites. Violations can result in fines of up to 30 million won. The Fair Trade Commission and the Financial Supervisory Service will also have the legal basis to form a joint investigation team to examine credit extension practices.
To facilitate consumer access to subscription information, a unified information system for prepaid funeral transactions will be established. Consumers will be able to check contract dates, payment amounts, compensation procedures, and company information through this system, which will link data currently scattered among businesses, banks, and mutual aid associations.
If a prepaid funeral company goes out of business, banks or mutual aid associations must notify the city or provincial governor, who will then announce the information. Companies are required to keep records related to contract cancellations and refunds for up to five years and make them accessible to consumers.
The accounting audit reports of companies will also need to detail transactions with controlling shareholders and related parties, as well as the status of investment assets, as specified in subordinate regulations.
This amendment does not increase the percentage of compensation that subscribers can receive. Under current law, in the event of a company going out of business, subscribers can recover 50% of their advance payments through compensation agencies. The focus of this amendment is to ensure quicker and more transparent verification of incidents and contract/payment information.
The reasons for business suspension will expand from eight to 31, including failure to pay refunds due to contract cancellations, improper use of consumer information, and exceeding the credit extension limit for controlling shareholders. The Fair Trade Commission can conduct market surveys and require businesses to submit data, with fines of up to 30 million won for non-compliance or false submissions.
If a mutual aid association's capital falls below 20 billion won or if it fails to comply with Fair Trade Commission corrective orders three times in the past five years, its establishment approval can be revoked. If the Fair Trade Commission requests disciplinary action or dismissal of an association's executive, that executive will be immediately suspended from duty until a decision is made.
The revised law will take effect one year after its promulgation. However, provisions related to the establishment of the unified information system will take effect immediately, and businesses and controlling shareholders that currently exceed the credit extension limit will have one year to rectify the situation.
* This article has been translated by AI.
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