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Special-type Sales

Overview

Purpose of the Act on Door-to-Door Sales, etc.:

  • This Act is enacted to protect the rights and interests of consumers and improve market credibility by preventing damage to consumers arising from special type sales, such as door-to-door sales and relieve consumers from damages inflicted on them, and thereby contributing to the sound development of the national economy.

What is special sale?

  • The current Act on Door-to-Door Sales, etc. prescribes five types of sales or transactions, such as door-to-door sales, telemarketing, multi-level marketing, recurring transactions, and business-soliciting transactions; and these five types of sales or transactions are referred to as 'special sales.'

Why special sale is distinguished from regular sales transactions and is regulated especially:

  • Special sale means selling products and services to customers as a seller or marketer actively going out and searching for customers and not just waiting for customers to come.
  • Though customers enjoy the convenience of purchasing products and services without visiting stores, they are comparatively more likely to suffer unexpected damages as compared with regular sales transactions.
    • Consumers do not have enough time to think about products or services and have much less knowledge on the relevant products or services; hence sellers take the initiative in business talks.
    • Under such circumstances, sellers often give coercive, false or exaggerated explanations to customers, and consequently consumers may suffer damage.

Concept of special sale by category:

  1. Door-to-door sale:
    • Generally salespersons visit the homes, offices, etc. of consumers to solicit the purchase of products, but not limited to the aforesaid method.
    • Door-to-door sale refers to the business model in which a person (seller) who runs a business of selling products or services sells such products or services upon receiving contract subscriptions from consumers or entering into a contract with consumers as he/she solicits them to purchase products or services in a place other than his/her place of business. (subparagraph 1 of Article 2 of the Act on Door-to-Door Sales, etc.) Direct door-to-door sale: A business model in which a salesperson visits homes, companies, etc. to sell products or services, which constitutes the major form of door-to-door sales, and includes sale of products by displaying them in the cafeteria, corridor, etc. of a workplace. Sidewalk sale: A business model in which a salesperson displays products on sidewalk stands, peddle products on the automobile, sells products by setting up an itinerant shop in an apartment complex or concentrated residential area, etc. Party plan selling: A business model in which a person sells products in a hotel, exhibition center, etc. rented for a short term (not more than three months), etc.
  2. Telemarketing:

    A business model in which products or services are sold by receiving contract subscriptions from consumers or by entering into a contract with consumers after soliciting consumers by telephone. (subparagraph 3 of Article 2 of the Act on Door-to-Door Sales, etc.) If telephone is used just to introduce or advertise products or services, and an actual contract is concluded at a later time, it is not telemarketing but corresponds to a regular sales transaction or mail order sale.

  3. Multi-level marketing:

    A business model in which sales companies encourage their existing distributors to recruit new distributors as their affiliate distributors. Distributors are structured on at least three levels or more, and compensated not only for the sales they personally generate, but also for the sales of their affiliate distributors.

  4. Recurring transactions:

    A business model in which a customer must enter into a subscription contract to be provided with a product or service during a period of at least one month. (subparagraph 8 of Article 2 of the Act on Door-to-Door Sales, etc.) Example: Most of membership transactions, such as subscription to magazines, membership cards for leisure and sports facilities.

  5. Business-soliciting transactions:

    A business model in which customers are solicited to purchase products by arranging or providing a business opportunity to them. (subparagraph 9 of Article 2 of the Act on Door-to-Door Sales, etc.)
    For example, transactions in which a supplier sets up an online shopping mall for a customer and sells a computer system to the customer in return, or a supplier entrusts a customer with translation services and sells books, casette tapes,etc. rdlated to translation to the customer, and more.

Details

Door-to-door sale and telemarketing:

Major duties of business operators:
  • A door-to-door business operator or telemarketing business operator shall report on specified matters, such as his/her trade name, address and telephone number to the head of a Si, Gun or Gu. (Article 5 of the Act on Door-to-Door Sales, etc.)
  • A business operator or salesperson shall inform customers of his/her name, trade name, address, kind of products, method of making payments, method of withdrawing subscriptions, terms and conditions and procedure of refund, etc. before concluding a contract, and deliver a written contract to consumers. (Article 7 of the Act on Door-to-Door Sales, etc.)
  • Consumers may withdraw a subscription within 14 days, and business operators shall refund the payment already made within three business days from the date relevant products, etc. are returned by consumers. (Articles 9 and 10 of the Act on Door-to-Door Sales, etc.)
Prohibited Activities (Article 11 of the Act on Door-to-Door Sales, etc.):
  • Coercing consumers to sign a contract, or exercising power over consumers for the purpose of interfering with the withdrawal of a subscription or the termination of a contract;
  • Soliciting consumers to make a transaction or interfering with the withdrawal of a subscription or the termination of a contract by giving false or exaggerated information to consumers or using a fraudulent means;
  • Imposing an obligation, such as collecting a certain amount of fee, or requiring them to purchase products as a condition for being a door-to-door salesperson, etc. or for maintaining qualifications for door-to-door salesperson, etc.
  • Obligating a door-to-door salesperson, etc. to assume the obligation of recruiting door-to-door salespersons, etc.
  • Changing the address, telephone number, etc. in order to interfere with the withdrawal of a subscription or the termination of a contract.
  • Unilaterally supplying products, etc. to consumers without any subscription from the consumers, and charging them for such products, etc.
  • Forcing consumers to purchase products or to receive services through telephone, fax, computer communications, etc. although they have declared their intent not to purchase such products or to receive such services.

Multi-level marketing:

Major duties of business operators:
  • They shall satisfy requirements, such as capital of at least 500 million KRW, and purchasing indemnity insurance for consumer protection, and file for registration with the relevant Si or Do.
  • Business operators or salespersons shall inform their customers of their name, trade name, address, kinds of products, methods of making payments, methods of withdrawing subscriptions, terms and conditions and procedure of refund, etc. before concluding a contract, and deliver a written contract to consumers.
  • Consumers may withdraw subscriptions within a period similar to that of door-to-door sales (within 14 days), but multi-level salespersons may withdraw subscriptions within three months; and business operators or salespersons shall refund the payment already made, within three business days from the date products, etc. are returned from the salespersons or consumers.
  • Where standards for the calculation and payment of support allowances to multi-level salespersons are to be revised, a notice shall be given three months before the date the revised standards are to be applied
Prohibited activities:
  • Paying support allowances to salespersons in excess of 35% of the total amount of the products supplied to salespersons;
  • Selling products at a specified price of at least 1,600,000 KRW a piece;
  • Coercing consumers to sign a contract, or exercising power over consumers for the purpose of interfering with the withdrawal of a subscription or the termination of a contract;
  • Soliciting consumers to make a transaction or interfering with the withdrawal of a subscription or the termination of a contract by giving false or exaggerated information to consumers or using a fraudulent means;
  • Imposing an obligation on multi-level salespersons, such as collecting a fee or article worth at least 50,000 KRW;
  • Giving economic benefits to a multi-level marketer for just recruiting an affiliate salesperson, or paying economic benefits, other than support allowances without justifiable grounds;
  • Changing the address, telephone number, etc. for the purpose of interfering with the withdrawal of a subscription or the termination of a contract;
  • Unilaterally supplying products, etc. to a transaction party or affiliate salesperson without any subscription from the transaction party or affiliate salesperson, and charging them for such products, etc.;
  • Forcing another person to register as an affiliate salesperson using his/her (who is a multi-level salesperson) social status, etc. or forcing his/her affiliate salespersons to purchase products, etc. from him/her.
  • Forcing a multi-level salesperson or a person intending to be a multi-level salesperson to undergo education, to stay in a training camp, etc. against his/her will.

Recurring transactions and business-soliciting transactions:

Major duties of business operators:
  • Before concluding a contract, a business operator shall inform consumers of his/her name, trade name, address, kinds of products, methods of making payments, methods of terminating a contract, and methods of exercising a right to terminate a contract; in the case of business-soliciting transactions, a business operator shall inform consumers of the terms and conditions of transaction, etc. regarding his/her business and deliver a written contract stipulating such matters to consumers. * However, the recurring transactions shall satisfy the aforesaid requirements if the terms and conditions of a transaction is an amount of at least 100,000 KRW and a period of at least three months; in the case of a business-soliciting transaction, if the terms and conditions of a transaction is an amount of at least 300,000 KRW irrespective of the period, such requirements shall be satisfied.
  • Consumers may terminate a contract at any time within the contract period, and in such case, consumers may hand in returnable products; business operators shall take measures, such as refund of the price thereof or reduction of cancellation charges.
Prohibited activities:
  • Exercising power over consumers for the purpose of coercing a customer to enter into a contract, or of interfering with the withdrawal or termination of a contract;
  • Soliciting consumers to make a transaction or interfering with the withdrawal or termination of a contract by giving false or exaggerated information to consumers or using a fraudulent means;
  • Making consumers purchase products at a price substantially higher than the arm’s length price;
  • Delaying or refusing follow-up measures without justifiable grounds even after a consumer has terminated or rescinded a contract;
  • Changing the address, telephone number, etc. in order to interfere with the termination or rescission of a contract;
  • Unilaterally supplying products, etc. to a consumer without any subscription from the consumer and charging him/her for such products, etc;
  • Forcing consumers to purchase products or to receive services through telephone, fax, computer communications, etc. although consumers have declared their intent not to purchase such products or to receive such services.