Starbucks Refund Controversy Spurs Review of 60% Usage Rule in Gift Card Policies

KFTC Considers Revising Standard Terms for Gift Certificates
Department Stores, Coffee Chains, and Cultural Gift Certificates Also Generally Use the 60% Rule

As Starbucks Korea's 'Tank Day' marketing campaign faced criticism for belittling the May 18 Democratization Movement, the refund policy for prepaid gift cards has come under renewed scrutiny. Amid mounting calls for a boycott, controversy has arisen over the current policy, which only allows consumers to get a refund for their prepaid card balance if they have spent a certain amount as stipulated in the terms and conditions.

On the 23rd, in front of Emart Gwangju store in Gwangcheon-dong, Seo-gu, Gwangju, mothers who are guardians of the old Jeonnam Provincial Office restoration site smashed cups and tumblers from Starbucks Korea, which caused controversy during the May 18 "Tank Day" event, with hammers. Photo by Yonhap News Agency

On the 27th, Yonhap News reported that as the number of consumers seeking refunds for Starbucks prepaid cards has increased, debate is growing over the refund policy for prepaid gift cards.

Currently, according to the Starbucks card terms of use, in order to receive a refund for the remaining balance, consumers must have used at least 60% of the balance as of the most recent recharge. For cards with a value of 10,000 won or less, at least 80% must be used to be eligible for a refund of the remaining amount. For example, if 50,000 won is loaded, a refund is only possible after spending at least 30,000 won, and if 10,000 won is loaded, at least 8,000 won must be spent.

Some consumers have voiced frustration, saying that "to join the boycott, they actually have to spend more money at Starbucks." There are also criticisms that the structure is contradictory, as customers must first spend a certain amount to get a refund for the prepaid card balance, even if they wish to stop using the service in protest against the company's social controversy.

As the controversy escalated, Starbucks Korea announced a temporary policy allowing unconditional refunds of prepaid card balances. However, this incident has sparked calls to reassess refund standards for not only Starbucks but also for coffee franchises, department store gift certificates, and mobile gift cards in general.

Current Refund Policy Is Based on Fair Trade Commission Standard Terms

The current refund policy is based on standard terms and conditions set by the Korea Fair Trade Commission (KFTC). According to the KFTC's standard terms for new types of gift certificates, for value-type certificates, users can claim a refund for the remaining balance if they have used at least 60% of the certificate's value within the validity period. However, for certificates worth 10,000 won or less, at least 80% must be used. For rechargeable gift certificates, the amount loaded at the time of the last recharge is used as the standard.

The Starbucks prepaid card falls under the category of rechargeable value-type certificates among the so-called "new types of gift certificates." Accordingly, Starbucks has applied a refund policy similar to the standard terms. However, the standard terms are not legally binding but are recommended guidelines. While companies are not strictly required to follow them, they are widely adopted across the industry as they are the government's recommended standard.

Officials from Shinsegae Group are conducting a Q&A session after Chairman Yongshin Jung's public apology regarding the controversy over Starbucks Korea's 'Tank Day' at Chosun Palace Hotel in Gangnam-gu, Seoul on the 26th. From the left are Executive Vice President Gyu-bong Lee, Executive Vice President for Management Sangjin Jeon, Head of External Cooperation Suwan Kim, and Audit Team Leader Jonghwan Yang. Photo by Jinhyung Kang

Other industries have similar policies. Most major coffee franchise prepaid cards and mobile coupons also allow refunds of the remaining balance if at least 60% of the value has been used. Major department stores such as Lotte, Shinsegae, and Hyundai require at least 60% of the face value to be used for cash refunds of both paper and mobile gift certificates. For certificates worth 10,000 won or less, the 80% usage standard applies.

Cultural gift certificates and vouchers for food delivery apps generally have similar refund policies. For example, mobile cultural gift certificates require at least 60% of the amount to be used before the validity period expires for a refund of the remaining balance. Likewise, for Baemin (Baedal Minjok) vouchers, at least 60% must be used after registration to receive a cash refund. On the other hand, some digital payment services such as Coupay Money, Naver Pay Money, and Kakao Pay Money allow users to withdraw their remaining balance more freely to their own bank accounts. These services are classified as prepaid electronic payment instruments under the Electronic Financial Transactions Act. While the standard terms for new types of gift certificates can apply to these instruments, because the terms are not mandatory, businesses can implement a 100% refund policy at their own discretion.

Starbucks prepaid cards are recharged and used via credit card or bank transfer, but they are not classified as prepaid electronic payment instruments under the Electronic Financial Transactions Act. This is because, under the Act, prepaid electronic payment instruments must be usable at multiple merchants, whereas Starbucks' company-owned store structure is considered as a single merchant.

Refund Policy Originated from Past Gift Certificate Act

The requirement to use a certain percentage of the gift certificate before a refund can be claimed originates from the former Gift Certificate Act. The past law was intended to prevent illegal discount sales and so-called "cash-out" schemes by only allowing refunds of the balance after a certain percentage had been used. After the law was abolished in 1999, the refund policy was relaxed to expand consumer rights, and now the 60% usage rule generally applies to certificates worth more than 10,000 won.

In 2022, Emart sold Shinsegae gift certificates in various denominations of 5,000 won, 10,000 won, 50,000 won, 100,000 won, 300,000 won, and 500,000 won ahead of the holidays. Photo by Hyunmin Kim

The main issue is whether it is appropriate to apply the same standards when a company faces social controversy or moral fault. The KFTC's standard terms for new types of gift certificates stipulate that within seven days of purchase, the full amount must be refunded. They also require a full refund if the product cannot be provided, if there are significant delays beyond the normal period, or if the issuer unilaterally restricts usage or changes terms to the consumer's disadvantage.

However, social controversies or consumer boycotts are not specified as exceptions for full refunds. For this reason, consumer advocacy groups argue that, as seen in the Starbucks case, when consumers refuse to use a service due to a company’s wrongdoing, the system should be improved to allow a refund of the prepaid balance regardless of the percentage used.

KFTC Reviewing Need to Revise Standard Terms for Gift Certificates

The Korea Consumer Organizations Council has demanded unconditional full refunds, stating that Starbucks' mobile app promotion insulted the May 18 Democratization Movement. The Council points out that the current standard terms and relevant laws do not provide a basis for refunds when consumers refuse to use a service due to a company's social or moral fault.

Starbucks prepaid cards are recharged and used through credit cards or bank transfers, but they are not classified as prepaid electronic payment instruments under the Electronic Financial Transactions Act. The Asia Business Daily Database

The KFTC is also reviewing the need to revise the standard terms for new types of gift certificates in light of the recent controversy. However, there are many issues to consider before any actual revision. Topics for discussion include whether to simply lower the 60% usage threshold, whether to include a company’s social fault as an exception for full refunds, and if so, how to establish objective criteria for such cases.

The key issue is likely to be how to determine "clear corporate fault." If the criteria for distinguishing between mere controversy and serious fault are ambiguous, it could undermine business predictability and increase disputes over refund eligibility on a case-by-case basis. On the other hand, there are concerns that relaxing refund requirements could lead to the abuse of prepaid gift certificates as a means of cashing out. For example, after giving or receiving high-value gift certificates, only a portion might be used and the remainder refunded, or if full refunds become widely permitted, gift certificates could function similarly to bank transfers. In this case, authorities would also need to consider implications for tax management and financial regulation.

The KFTC has stated that it will review both the need for consumer protection and the broader impact on industry. Since the standard terms affect not only individual companies but also the entire market for online and mobile gift certificates, striking a balance between consumer rights and the risk of market abuse is expected to be a central issue in the reform process.

This content was produced with the assistance of AI translation services.