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Installment Transaction Policy

Overview

The Purpose of the Installment Transactions Act

The purpose of this Act is to protect the rights and interests of consumers, enhance market confidence by ensuring fairness in transactions based on installment contracts and prepaid installment contracts.


Installment Transaction

The term "installment transaction" means a method of selling on credit, through which a seller of goods receives part of the purchase price at the time the goods are delivered and the balance thereof by installment payments over a fixed period.


The types of sales on installment basis can be divided into: (a) a contract under which a purchaser makes installment payments directly to the seller (e.g. three-month installment for books) and (b) a contract under which a purchaser makes indirect installment payments to a third person acting for the seller (e.g. three-month credit card installment payments).


Key Provisions of the Installment Transactions Act

Installment Transaction Prepaid Installment Transaction
Definitions

A contract under which a consumer makes installment payments of the price of goods, etc. on three or more occasions over a period of two or more months to a business entity or credit provider and receives the goods from the business operator before fully paying the price.

A contract under which a consumer makes installment payments of the price of goods, etc. on two or more occasions over a period of two or more months to a business entity and receives the goods from the business operator after fully or partially paying the price. Applicable to services for funeral or wedding (excluding cases where the time of provision is fixed) and other goods incidental to such services.

Obligations of installment business operators
    Obligation to provide information before the conclusion of contract.
    Obligation to conclude an installment contract in a written form
  • Obligation to register
    Obligation to submit accounting audit reports
    Obligation to explain matters stipulated in the Installment Transactions Act to each consumer before signing the contract
    Obligation to issue of contracts due to conclusion of contract
    Obligation to reserve advances
Rights of consumers
  • Right to withdraw an offer (within seven days from the date on which he/she received a contract or goods).
    Right to refuse to pay an installment where events stipulated in the Installment Transactions Act occurs to a consumer. The events include when the installment contract has been revoked, when the installment business operator fails to meet his/her obligations.
  • Right to withdraw an offer (within fourteen days from the date on which he/she received a contract)
    Right to rescind the contract

Key Tasks

Implementing Policies for Consumer Protection in Prepaid Installment Transaction

Consumer Damage Indemnification Insurance Contract
  • When a prepaid installment business operator discontinues his/her business, the business operator shall promptly pay 50% of the total of the advances as indemnification to a consumer who has concluded the prepaid installment contract.

  • A prepaid installment business operator shall conclude consumer damage indemnification insurance contract, such as a deposit contract or a mutual aid contract, with deposit institutions or mutual aid associations.

Consumer Damage Indemnification Insurance Contract
  • When a prepaid installment business operator discontinues his/her business, the business operator shall promptly pay 50% of the total of the advances as indemnification to a consumer who has concluded the prepaid installment contract.

  • A prepaid installment business operator shall conclude consumer damage indemnification insurance contract, such as a deposit contract or a mutual aid contract, with deposit institutions or mutual aid associations.

Prepaid Installment Contract Protection Service
  • The service allows consumers to receive similar services without additional charges even when their prepaid installment business operators providing funeral services shut down their businesses.

  • When a consumer joins other prepaid installment business operator with the indemnification he/she received after his/her previous prepaid installment business operator shut down its business, the consumer can receive a similar service without paying additional charges.

Providing information about prepaid installment business operators to consumers to help them make informed choices

Prepaid installment business operator Search Service
  • The search service enables consumers to search the number of members, financial status, advance payment status of each prepaid installment business operator.

The KFTC also publishes the list of prepaid installment business operators with sound financial status and any change made to the registered information of a prepaid installment business operator.


Overseeing and Supervising Mutual Aid Associations

Prepaid installment business operators may establish a mutual aid association with approval from the KFTC in order to conduct a mutual aid business.


A mutual aid association shall draft its articles of association and obtain approval thereon from the KFTC. This shall also apply to any amendment to the articles of association.


The KFTC may, where deemed necessary, order the mutual aid association to submit a report on its business and accounting or to take other necessary measures.

Imposing Corrective Measures and Sanctions Against Violation of the Installment Transaction Act

Sanctions for Violation of the Installment Transaction Act

Where a prepaid installment business operator violates the Installment Transaction Act, the KFTC may issue a corrective order, order to publish the fact that the business operator received a corrective order, or impose penalty surcharges, on the business operator. Also the KFTC may file a criminal charge against the business operator or its employees.

The KFTC conducts investigations ex officio twice a year to identify the violations of the Installment Transaction Act. Conducts in violation of the Installment Transaction Act include not setting aside the amount that shall be reserved and not refunding the downpayment and paid installments to consumers.


Key Case

    1. TourLife Case

    2. ㅇ The KFTC imposed sanctions against TourLife for not refunding the downpayment and paid installments and conducting other violations (Dec. 2018).


      • TourLife claimed that they are under court receivership and hindered consumers from withdrawing their offers and did not refund the downpayment and paid installments to consumers. The KFTC issued an order to make the refund, imposed 2 million won as an administrative fine, and filed criminal charges against the business operator and the CEO.

    3. CloverSangjo Case

    4. ㅇ The KFTC issued a corrective order and filed criminal charges against CloverSangjo and its CEO for failing to deposit 50% of the total of the advances and submitting false documents to a deposit institution (Mar. 2019).


      • CloverSangjo only deposited 0.7% of the advances it received from 81 prepaid installment contracts. Under the Installment Transactions Act, a prepaid installment business operator is obligated to reserve 50/100 of the total of the advances received from consumers.

      • CloverSangjo also submitted false documents to a deposit institution to not comply with the obligation to reserve 50% of the advances received. Submitting false documents to a deposit institution is also a violation of the Installment Transactions Act.

      • With these measures, the KFTC expects to prevent similar consumer damage and send a warning signal to fraudulent business operators which fail to reserve 50% of the advances then discontinue the businesses.