Installment Transactions Act Amendment Passes National Assembly... Credit Extension to Funeral Service Company Controlling Shareholders Limited to 50% of Paid-In Capital

Blocking the Private Interests of Controlling Shareholders
First Ever Joint Investigation by KFTC and FSS Introduced

From now on, funeral service companies will be completely prohibited from excessively lending subscriber advance payments to their controlling shareholders or affiliates. Violations will be punishable by up to three years in prison, and, for the first time ever, the Korea Fair Trade Commission (KFTC) and the Financial Supervisory Service (FSS) will launch a joint investigation.

On August 20, the KFTC announced that an amendment to the “Installment Transactions Act” (Installment Transaction Act) containing these measures has passed the National Assembly’s plenary session. This move aims to prevent moral hazards and strengthen consumer protection in the rapidly growing prepaid installment transaction market, which has reached 11 million subscribers and advance payments totaling 11.3 trillion won.

The core of this amendment is the introduction of credit extension limits to controlling shareholders and specially related parties for prepaid installment traders, including funeral service providers. Previously, there were no restriction rules, which led to criticism that many companies misappropriated advance payments for loans to major shareholders’ families or to support affiliates.

Going forward, the aggregate amount of loans, payment guarantees, and other credit extensions that can be provided to controlling shareholders, etc., will be strictly limited to within 50% of paid-in capital. Any party that lends or receives funds beyond this ceiling will be subject to imprisonment for up to three years or a fine of up to 100 million won. Credit extensions exceeding a certain amount must obtain unanimous board approval (all registered directors), be reported to the KFTC post-factum, and be disclosed publicly on the internet.

Specifically, the amendment establishes a legal basis allowing the KFTC and the FSS to jointly form an investigation task force in cases of violations of credit extension limits. By combining the KFTC’s authority to investigate market order with the FSS's expertise in financial supervision, the new system is expected to enable rigorous market oversight.

Consumer convenience and access to information will also be greatly improved. A “Prepaid Installment Transaction Integrated Information System” will be established, allowing unified access to contract dates, advance payment records, and damage compensation procedures, which were previously dispersed among individual companies, banks, and mutual aid associations.

To prevent cases where consumers cannot claim compensation payouts after a funeral company closes, for example due to address changes, the amendment makes it mandatory for the party obligated to pay to notify the city or provincial governor when a payment obligation arises, and for local governments to publicize this information. In addition, key documents related to contract cancellations, such as refund statements, must be preserved and made accessible for up to five years, enabling swift fact-checking in case of disputes.

Furthermore, the regulatory framework is being reinforced by introducing grounds for canceling the establishment license of insolvent mutual aid associations, and by stipulating the immediate suspension of mutual aid association officers and employees who are subject to disciplinary action or dismissal.

The amended law will take effect one year after promulgation, except for the integrated information system provision, which becomes operational immediately upon promulgation. Excess loans to controlling shareholders must be fully recovered within one year of the law’s implementation.

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