Sharp Increase in Consumers’ Losses Due to Merger between Mutual Aid Businesses

- The Autonomous Mediation Committee points to a need for realistic aid for consumers’ loss.

 

Despite the amendment to The Installment Transactions Act in September 2010 enacted to regulate mutual aid businesses, it appears that the number of cases in which consumers suffer loss due to businesses’ refusals to repay cash surrender value has not decreased. According to a survey, the number of such complaints about mutual aid businesses received by the Autonomous Mediation Committee of the Korea National Council of Consumer Organizations (KNCCO / Chair: Kim Yeon-hwa) has continued to increase (i.e., 1.7% of entire complaints submitted in 2010; 6.0% in 2011; 16.3% in 2012 [up to October].)

Out of a total of 249 cases of complaints submitted to the said committee in 2012 (up to October), those related to the refusal to repay cash surrender value topped the list (83 cases, 33%), followed by disputes over which business should pay it in association with mergers (70 cases, 28%), delay in such payment (36 cases, 15%), contract cancellation (27 cases, 11%), and temporary/permanent closure of business (20 cases [8%]).

It is noteworthy that consumer’s loss associated with the merger between businesses newly appeared and there is a sharp increase in the number of complaints about the refusal to repay cash surrender value associated with temporary/permanent closure of businesses. The situation concerning forced closure of poorly operating businesses also appears to be serious.

 

A Sharp Increase in Consumers’ Loss Due to Merger between Mutual Aid Businesses

- “The current law should be rapidly amended to protect consumers.”

As a result of the analysis of types of consumers’ losses related to mergers between mutual aid businesses, it appears that they are composed as follows: ▲ disputes over which business should be responsible for repayment of cash surrender value in the case of a merger between mutual aid businesses (60%); ▲ lack of notice about the merger (21%); ▲ contract cancellation due to a merger (12%), and; ▲ inquiries about information on the business that has taken over (7%).

The Installment Transactions Act stipulates that all responsibilities shall be transferred to the business that has taken over, only if it is a pre-paid type of installment business. However, in many cases, such a contract for a merger between mutual aid businesses requires the transfer of only members, making consumers confused about which business they should go to for repayment of cash surrender value.

 

【Case of dispute -1】 Dispute over which business should be responsible for repayment of cash surrender value in the case of a merger between mutual aid businesses - Judgment based on the merger contract and consumers’ consent - A Mr. Kim in Busan (in his 60s) signed a mutual aid-related mutual aid contract worth 1.8 million won (installment payment of 30,000 won each month for 60 months) with a business named “A”. At the time of the 45th month of installment payments, another mutual aid business named “B” took over “A”. After three monthly installment payments after the takeover, Mr. Kim asked “B” for a contract cancellation. - “A” said that the takeover agreement made between it and “A” requires the transfer of only members and thus it would provide mutual aid-related service, but, as for cash surrender value associated with contract cancellation, it could repay only part of the three months’ installment payment that Mr. Kim made to “B”. 【Case of dispute - 2】 Dispute over which business should be responsible for repayment of cash surrender value in the case of a merger between mutual aid businesses   - A Ms. Lee in Gwangju (in her 50s) signed a mutual aid-related mutual aid contract worth 3 million won (monthly installment payment of 50,000 won for 60 months) with a business named “C.” The contract reached maturity in March 2012. In May 2012, Ms. Lee asked for a contract cancellation. Until that time, she did not know that “C” was taken over by “D.” - The business “D” said that it was not responsible for a notice about the merger to the members whose contracts reached maturity prior to the merger contract. It added that it could continue to provide the relevant service, but it could pay no cash surrender value under the contract with Ms. Lee.

 

 

 

 

 

A Steady Increase in Consumers’ Losses Due to Temporary/Permanent Closure of Mutual Aid Businesses

- “It is necessary to adopt a procedure for realistic compensation for consumers’ losses.”

Concerning cases of consumers’ losses associated with businesses’ temporary/permanent closure, they appear to comprise the following: ▲ no clarity regarding which business should repay cash surrender value (50%); ▲ lack of notice about the temporary/permanent closure (25%); ▲ change in the details of service after resumption of business (15%), and; ▲ inquiries about information on the business that has taken over (10%).

In the case of permanent closure of the mutual aid business, consumers cannot claim their rights to the installment payments already made. Even if a business has stopped operating, consumers cannot ask the relevant mutual aid cooperative or bank for compensation until the business submits its report on permanent closure.

 

 

【Case of dispute -3】 A consumer’s loss due to permanent closure of mutual aid business - A consumer experiencing difficulty due to the lack of knowledge about the consumer protection procedure concerning permanent closure of business - A Mr. Park in Busan signed a mutual aid contract worth 1.5 million (monthly installment of 30,000 won for 60 months). He paid a total of 1.5 million in monthly installments. He came to know that the business closed permanently only six months later. He tried to contact the business to get his installment payment back, but his efforts were in vain. - He asked the bank where he made the installment payments what to do, but the bank could not give him help. 【Case of dispute -4】 A consumer’s loss due to temporary closure of mutual aid business - A Mr. Hwang in Seoul came to know that the mutual aid business named “P” with which he made a contract in 2010 closed temporarily. He contacted the relevant mutual aid cooperative, but it said that it could not repay cash surrender value, as it was not a case of permanent closure. -The business was actually in a state of permanent closure, which meant that it could not provide mutual aid service to customers. However, Mr. Hwang could not get assistance on the excuse that the business did not submit its report on permanent closure.

 

 

 

 

In connection with the foregoing cases, the Autonomous Mediation Committee of the KNCCO plans to hold a discussion session on November 16, 2012 concerning how to protect such consumers, including the following, and submit its recommendation to the relevant institutions: ▲ a need to amend The Installment Transactions Act, Article 22 (Scope of Responsibilities concerning Succession of Status); ▲ making it required for the business to inform consumers of important facts, such as temporary/permanent closure, and follow the procedure of obtaining individual consumers’ written consent in advance; ▲ a need to supervise the business concerning withdrawal of subscription and contract cancellation during the period of temporary closure or suspension of business; and ▲ improvement of the realistic procedure for compensation of consumers’ losses.

 

Consumers can obtain assistance from the Consumer Consultation Center of the Fair Trade Commission (Phone: +82-1372) and the Autonomous Mediation Committee (Phone: +82-2-774-4154~55) in the event of a dispute over a business’s unilateral refusal to repay cash surrender value, contract cancellation or merger.