Eduplex Inflates Consent Rate to Collect Advertising Fees... Fair Trade Commission Issues First Sanction Under "Pre-Consent Advertising System"

First Sanction Since Introduction of Pre-Consent System for Advertising in 2022
Survey Conducted Without Providing Information on Cost Burden

The headquarters of the well-known educational counseling brand "Eduplex" was found to have collected advertising fees from all franchisees without properly informing them about the advertising cost burden, and even inflated the consent rate arbitrarily. This is the first case in which the Fair Trade Commission has sanctioned a franchisor by applying the "pre-consent system for advertising" introduced in the Franchise Business Act in 2022.

Eduplex promotional photo. Eduplex homepage.

On July 22, the Fair Trade Commission announced that it had imposed a corrective order on Nexcube Corporation Co., Ltd., the franchisor for "Eduplex/Educoach," for violating the Franchise Business Act. The company ran advertisements and charged the costs to all franchisees without obtaining lawful prior consent from them.

Under the current Franchise Business Act, if the franchisor wants to run an advertisement for which franchisees must share the costs, it must obtain prior consent from more than 50% of all franchisees. According to the investigation, in November 2022, during the process of expanding the "performance-based advertising fee sharing" system—which charges a specific fee per newly registered student—to all franchisees, Nexcube Corporation did not provide franchisees with essential information such as detailed advertising content or grounds for cost calculation. A survey was conducted asking for approval or disapproval, even though franchisees did not know how much they would be required to pay.

The company even manipulated the consent rate calculation. The headquarters suggested two different types of cost-sharing plans (Plan A: 110,000 won per every new student; Plan B: 220,000 won per student registered through advertising effects). When the approval rates for each plan failed to reach 50% (Plan A 47.0%, Plan B 11.4%), the company simply added both approval rates to distort the figure as if it exceeded 50% and proceeded with the advertisement campaign.

The Fair Trade Commission determined that consent without sufficient information on the size and appropriateness of the costs to be borne by franchisees cannot be considered valid consent, and aggregating approval votes from two different types of consent also constitutes an arbitrary distortion of the consent rate. However, taking into account the lack of clear malicious intent by the headquarters, the absence of unjust enrichment, and the subsequent reduction in franchisees' cost-sharing ratio, only a corrective order (prohibition and notification order going forward) was imposed without any fine.

The Fair Trade Commission stated, "This is the first sanction case since the introduction of the pre-consent system for advertising in 2022. It is significant in that it sets clear standards that a franchisor must provide sufficient information about costs when collecting advertising expenses and that the method for calculating the consent rate must be objective," adding, "We will continue to strictly enforce the law against any infringement on the right to know of franchisees or the unfair shifting of advertising expenses through deceptive methods."

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