Financial Authorities to Reform 'Opaque Cancellation and Refund' Practices of Netflix, Melon, and Others

7-Day Notice Before Paid Conversion
Simplified Contract Termination Procedure

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[Asia Economy Reporter Kim Hyo-jin] Subscription economy companies such as Netflix, Melon, and Coupang are set to implement measures requiring them to notify consumers at least 7 days in advance when converting free trial services to paid subscriptions, and to simplify the cancellation process.

The Financial Services Commission announced on the 3rd that it will promote these measures to strengthen consumer protection during the usage and payment processes of the increasingly active subscription economy.

The subscription economy refers to a model where consumers pay a fixed amount regularly, and providers supply specific goods or services. Companies such as Netflix and Melon (digital content services), Coupang and Gmarket (regular delivery services), and Ridibooks and Millieoseojae (books) are classified as subscription economy providers.

With the expansion of digital platform-based consumption and shorter trend cycles, the global subscription economy market is estimated to reach approximately $530 billion this year. In South Korea, various forms of subscription economy services have been activated due to the impact of COVID-19 and other factors.

Subscription service providers operate as sub-merchants of credit card merchants or payment gateway companies, while consumers pay subscription fees via credit card or bank transfer methods.

Meanwhile, issues such as insufficient notification when converting from free trials to paid services, overly complicated cancellation procedures, and inadequate refund measures upon subscription cancellation have been continuously raised.

Accordingly, the financial authorities plan to specify in the standard terms and conditions that when a free service converts to a paid one, consumers must be notified in writing, by voice call, or text message at least 7 days before the conversion date. This includes cases where a discount event ends and the service switches to the regular fee, and the notification must be given at least 7 days in advance regardless of whether the paid conversion was informed at the time of subscription.

The authorities will also mandate that contracts can be canceled through simple procedures on mobile applications and websites, and extend the hours during which cancellations can be processed. For example, the contract signing and cancellation paths will be displayed on the same screen, and cancellation requests will be accepted even after regular customer service hours.

Furthermore, when canceling a recurring payment, if the payment has not yet been made, the fee will be charged proportionally to the number of uses before cancellation. If payment has already been made, the refund will be processed by deducting the proportional amount for the used period.

If payment was made before cancellation, consumers will be given sufficient options to receive refunds immediately through credit card payment cancellations or bank transfers.

Additionally, through amendments to the Enforcement Decree of the Specialized Credit Finance Business Act, subscription economy companies will be obligated to clearly inform consumers of transaction conditions such as recurring payments, thereby regulating the industry.

The financial authorities plan to announce the legislative proposal for the amendment to the Enforcement Decree of the Specialized Credit Finance Business Act in the first quarter of next year. The related standard terms and conditions will be implemented immediately after the decree amendment is completed.

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