The Purpose of the Act on the Regulation of Terms and Conditions
The purpose of this Act is to prevent unfair clause that shall be null and void and to promote the use of Standard Terms and Conditions (the “Standard T&C”).
Terms and Conditions
The term "terms and conditions (the “T&C”)" means the content of a contract that a party to a contract prepares in a specific form in advance in order to enter into a contract with multiple other parties, regardless of their name, type, or scope.
The reasons for regulating unfair T&C
T&C have become commonly used for the purpose of expediting and simplifying transactions and supplementing existing laws and regulations to catch up with the increasingly complicated and diversified socio-economic structure.
In reality, however, the party who offers T&C almost always prepares them contained therein in its own favor, or most of the customers are unaware of the detailed content and therefore do not have the freedom to willingly make decisions regarding any terms in the contract.
In order to protect the bona fide intent of consumers, customers, etc. who are the weaker party in the economy and to establish fairness in transactions conducted according to T&C, it is necessary to regulate unfair T&C.
Characteristics of the Act on the Regulation of Terms and Conditions
- A general Act that is applied to a general circumstance, irrespective of transacting parties entering into an adhesion contract
- A mandatory Act that invalidates any agreement between the relevant parties which excludes application of the Act on the Regulation of Terms and Conditions
- An administrative Act under which administrative agencies impose corrective orders (recommendations) and penalties
Examining Unfair T&C
Unfair clauses shall be null and void under the T&C Act. Following clauses in T&C are some of the examples of unfair clauses:
- A clause which, without a substantial reason, obligates customers to pay excessive restitution
- A clause which, without a substantial reason, gives a business person power to unilaterally determine or change the details of performance
With the growing interest and awareness in the examination of T&C by the KFTC, the number of requests for examination has increased.
The percentage of the violations of the T&C Act that are voluntarily corrected is higher than other types of violation, since promptly correcting the violations of the T&C Act is necessary for effectively protecting the rights and interests of consumers.
- Unfair T&C of Netflix
ㅇ The KFTC recommended Netflix to revise its unfair T&C (Jan. 2020).
- Unfair clauses recommended for corrections includes, a clause allowing the provider to change membership fees without a member’s consent; an unclear clause regarding terminating or restricting a member’s account; a clause that shifts the responsibility to members for matters which they are not responsible for, such as account hacking.
ㅇ The KFTC recommended Google, Facebook, Naver, and Kakao to revise unfair clauses in their terms of service (Mar. 2019).
- There were 10 unfair clauses including one allowing the operator to earn a worldwide license to use, host, store, reproduce, modify, create derivative works, communicate, publish, publicly perform, publicly display and distribute users’ content when they upload and store content through its service.
Difference between examination of adhesion contracts by KFTC and that by courts
The examination of T&C by KFTC does not require a specific contractual relationship as a prerequisite, but focuses only on the fairness of the T&C and determines their validity. If necessary, KFTC takes necessary measures including elimination and/or correction of specific clauses. In comparison, the court examines the validity of the T&C as a matter for a prior decision to confirm the rights and obligations of the relevant parties, in an actual contractual relationship, and the effect of such confirmation has ex post facto effect only on the persons who bring the individual case to the court.
Enacting, amending and promoting the Standard T&C
The KFTC enacts, amends, and promotes the use of the Standard T&C, which is used in specific business transactions (from 1992, when the Standard T&C was first introduced, to May 2020, a total of 76 Standard T&C have been enacted).
- The KFTC enacts, amends, or promotes the use of Standard T&C at the request of any business entity, organization of business entities, consumer organization, ex officio.
- The KFTC can recommend business entities and organizations of business entities to use the Standard T&C. If they use T&C different from the Standard ones, they shall indicate the major differences in a manner that customers can readily understand. A person who fails to indicate the major differences shall be punished by an administrative fine not exceeding five million won.
The number of requests for the enactment or amendment of Standard T&C has increased since the scope of entities that can make the request has expanded from business entities or organizations of business entities to any registered consumer organization or the KCA.
Appointing Consultative Committee for the Examination of T&C
The division appoints a consultative committee to gather expert opinions for important and sensitive cases.