Punitive Damages and Class Action Reforms Back on the Table... Increasing Pressure on Financial Firms

Representative Min Byeongdeok Introduces Amendment to the Financial Consumer Protection Act
Financial Sector Expresses Concerns Over "Practically Unlimited Liability"

[Asia Economy Reporter Kim Hyo-jin] The ruling party's legislative moves to significantly expand the responsibilities of financial companies under the pretext of enhancing and protecting the rights of financial consumers are intensifying. Amid the government's already strengthened consumer protection stance following repeated private equity fund sales accidents, the 21st National Assembly has seen a series of legislative attempts aimed at tightening regulations on financial companies, raising tension and concerns within the financial sector.

According to financial and political circles on the 4th, Min Byung-duk, a member of the Democratic Party of Korea, submitted a bill to amend the Financial Consumer Protection Act (FCPA) the day before, which introduces punitive damages for financial companies and a consumer class action system.

The amendment includes provisions requiring financial companies to compensate up to three times the damages if they fail to remedy or obstruct relief despite widespread consumer harm caused by illegal acts and where their income significantly exceeds the damage amount. It also includes provisions allowing one or more consumers to act as representative plaintiffs to claim damages when many consumers suffer harm due to violations of the FCPA by financial companies.

This amendment is a formal step further than the bill previously submitted by Jeon Jae-soo of the same party in July. Jeon’s bill did not include the class action system.

The FCPA, first proposed about nine years ago, passed the National Assembly in March and is set to be implemented in March next year. Punitive damages and class action systems were key issues during the enactment discussions of the FCPA in the 20th National Assembly but were not included. There were strong voices that adding punitive damages and class actions on top of existing strong sanctions like punitive fines would excessively strengthen consumer post-relief and impose unreasonable responsibilities on financial companies.

As a result, the FCPA passed without these two systems, leading to criticism within the ruling party that the law was "hollow."

Min said, "During the 20th National Assembly, the opposition was intense, so these provisions could not be included in the law," adding, "Protective measures such as punitive damages should be implemented together with the enforcement of the FCPA."

Opposition and Support Clash in the 20th National Assembly... Excluded from the Enactment Bill
Financial Sector Tension Amid Surge of Laws Tightening Financial Companies

A political insider said, "Since the enactment of the FCPA was urgent, discussions on contentious issues like punitive damages were temporarily postponed," adding, "These issues are now back on the table in the 21st National Assembly." Although opposition and support are expected to clash again during the standing committee discussions, considering the current parliamentary seat distribution, the likelihood of passage is high.

There are already numerous bills submitted by Democratic Party lawmakers aimed at strengthening regulations on financial companies.

These include ▲an amendment to the Financial Company Governance Act that mandates CEOs’ responsibility for internal controls and imposes fines up to three times the consumer damage amount ▲the so-called "Samsung Life Act" (amendment to the Insurance Business Act) requiring insurance companies to calculate the value of held stocks based on market price rather than acquisition cost ▲and a bill to ensure that if consumers accept the Financial Supervisory Service’s dispute mediation for cases below a certain scale, financial companies must unconditionally accept it, securing one-sided binding force (amendment to the FCPA).

A financial sector official pointed out, "Regulatory mechanisms for financial companies, especially punitive measures, are being built in double or triple layers, which effectively imposes near unlimited liability," adding, "The trend of dividing financial companies and consumers into opposing camps and increasingly antagonizing financial companies seems to be becoming clearer."

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