Prepaid funeral service providers will be limited to lending no more than 50% of their capital to controlling shareholders or related parties. This measure aims to prevent customer deposits from being used as private funds by these shareholders.
The Fair Trade Commission (FTC) announced on September 30 that it held a meeting at the Korea Fair Trade Mediation Agency to explain key points of the recently amended installment transaction law to prepaid installment transaction businesses. The amended law, which was promulgated on September 8, introduces asset soundness regulations for prepaid installment transaction providers for the first time.
The core of the new regulations is the restriction on credit extensions to controlling shareholders and related parties. Going forward, the credit limit for these individuals will be capped at 50% of the company's capital. A controlling shareholder is defined as the largest shareholder owning more than 30% of the total issued shares of the corporation, while related parties include the controlling shareholder's spouse, affiliates, and executives. Companies will also be required to disclose and report the status of credit extensions to controlling shareholders on a quarterly basis.
The FTC emphasized that customer deposits are intended to fund future contract fulfillment. If these funds are lent to controlling shareholders or used privately, it could lead to the 'privatization' of customer deposits and undermine consumer trust in the prepaid installment transaction industry.
Furthermore, the FTC stated that there will be a one-year preparation period for the credit limit regulations before they take effect, and it plans to respond strictly to any violations after the law is implemented.
The FTC warned, "We will respond rigorously to both intentional violations of the law and those that occur due to ignorance of the regulations," and urged companies to establish plans for recovering any credit extended to controlling shareholders.
Fourteen companies, including Woongjin Free Life, Kyowon Life, Sonos Station, The K Yedaham Funeral Service, Boram Funeral Life, and others, attended the meeting. The Korea Funeral Guarantee Association and the Funeral Guarantee Insurance Association also participated.
The FTC plans to listen to the industry’s concerns regarding compliance with the amended law and will incorporate necessary improvements into future subordinate legislation. Additionally, it introduced a revised consumer protection guideline for prepaid installment transactions, which includes basic directions for the sound management of customer deposits and the establishment of internal control systems.
As the implementation of the amended law approaches, the FTC will continuously monitor the industry to ensure compliance with individual companies' plans.
An FTC official stated, "We will actively conduct investigations into businesses that do not comply with the credit limit for controlling shareholders and will take strict action against any legal violations."
* This article has been translated by AI.
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