FTC to Curb Funeral Firms' Use of Customer Advance Payments as "Petty Cash"; Review Committees Required at Firms with 100 Billion Won or More

Prior review required for investments in high-risk assets
Review committee required, with input from external experts:VEVENT

The Korea Fair Trade Commission is tightening internal controls to prevent prepaid installment transaction providers, including funeral service companies, from making indiscriminate, high-risk investments and to protect consumers from harm. A prepaid installment transaction is a contract under which a customer pays for services such as funerals, weddings or cruise travel in at least two installments over a period of two months or longer, and receives the services after paying the full amount.

The Korea Fair Trade Commission said it has revised its “Guidelines for Consumer Protection in Prepaid Installment Transactions,” which focus on the sound management of advance payments and the establishment of voluntary self-inspection systems, and that the revised guidelines will take effect on October 23.

The revision is intended to prevent companies such as funeral service providers from excessively investing customer advance payments in high-risk assets with a substantial risk of principal loss, including derivatives, virtual assets and leveraged financial products. It also requires strict prior review of practices that provide undue benefits, such as granting controlling shareholders or their related parties preferential terms that deviate from customary transaction conditions or providing them with debt guarantees.

Accordingly, prepaid installment transaction providers must manage advance payments by balancing stability, liquidity and profitability to ensure there are no disruptions to future delivery of goods or payment of cancellation refunds. A key element of the revision is the establishment of an effective internal control system, going beyond merely declarative guidelines.

Under the revised consumer protection guidelines, prepaid installment transaction providers must establish policies for managing advance payments that include investment review and risk management procedures, and draw up an advance-payment management plan to be reported to the board of directors each fiscal year. In particular, large prepaid installment transaction providers with at least 100 billion won in advance payments as of the end of the previous business year must establish and operate an “Advance Payment Management Review Committee” to ensure the stability and transparency of their management of advance payments.

When the committee reviews transactions with controlling shareholders or investments in high-risk assets, it must hear opinions from external experts in accounting and finance, as well as from employees of entities responsible for making payments, such as mutual aid associations and banks. This significantly strengthens its oversight and checks. The Korea Fair Trade Commission plans to encourage the industry to comply with the guidelines through meetings and other means, and to work toward establishing sound trading practices.

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