Confusion Over Financial Consumer Protection Act: Financial Authorities Clarify "Disclosure Obligation Does Not Mean Reading Every Part of the Manual"

-Explanation obligation does not apply to general adults when subscribing to deposits
-Explanation obligation also does not apply in cases such as loan term extension, renewal of indemnity health insurance, or credit card term extension, which are not new contracts

[Asia Economy Reporter Park Sun-mi] Financial authorities have decided to work with the financial industry to explore ways to improve efficiency in order to shorten consumers' financial product transaction times. On the 25th, following the enforcement of the Financial Consumer Protection Act (FCPA), frequent delays in subscription times occurred at bank frontline counters due to detailed explanations by sales staff about products, prompting efforts to find solutions.

On the 29th, the Financial Services Commission and the Financial Supervisory Service announced that to prevent unnecessary difficulties for both sellers and consumers during financial product transactions, important matters related to financial product solicitation and contracts will be guided. They noted, "On the day the FCPA was enforced, it was identified that sellers and consumers experienced difficulties at bank frontline counters due to detailed explanations by sales staff about products and somewhat stricter investor suitability assessments."

According to the provided important information, at the financial product recommendation stage, sellers must confirm whether the customer is a general financial consumer before soliciting the product. This is because certain provisions under the FCPA (principles of suitability and appropriateness, duty to explain, right of withdrawal from subscription, prohibition of deviation from small dispute mediation) apply only to general financial consumers. The definition of a general financial consumer varies depending on the type of financial product. For example, for general adults, the duty to explain does not apply when subscribing to deposits.

Customer suitability assessments can be simplified in some cases. If a consumer who has previously transacted intends to make a new transaction and there are no changes in the information provided by the consumer or the suitability criteria, there is little practical benefit in conducting a new suitability assessment. To shorten consumers' financial product transaction times, financial authorities plan to explore efficiency improvement measures with the industry, such as establishing a system where suitability assessments are conducted non-face-to-face before visiting branches and the results are delivered to the branches.

At the financial product explanation stage, the duty to explain is generally performed when soliciting a new contract or upon customer request. The duty to explain does not apply in cases that are not new contracts, such as loan term extensions, renewal of indemnity medical insurance, or credit card term extensions. The financial authorities stated, "The duty to explain financial products does not mean that consumers must read the explanation documents in full," adding, "Sellers must convey the contents of the explanation documents in a way that consumers can easily understand according to the duty to explain, and there are no restrictions on the methods used." Items in the explanation documents that the consumer indicates they do not need explained can be excluded, and it is essential to confirm that the customer has understood the explanation.

At the financial product contract stage, it is not necessary to print and provide contract documents on paper. Contract documents can be provided in writing, by mail (including email), text message, or other electronic means of expression (which cannot be forged or altered) according to the consumer's preference. The right of withdrawal from subscription does not apply to all financial products. It is generally applied to loan-type and insurance-type products with some exceptions, not allowed for deposit-type products, and allowed in a limited way for investment-type products.

Additionally, financial authorities clarified that the right to terminate an illegal contract does not guarantee the principal. The right to terminate an illegal contract applies in principle to all financial products with continuous contracts where termination causes financial disadvantages. The effect of terminating an illegal contract occurs prospectively, meaning the contract becomes void from the 'termination point' onward. Costs related to services under the contract before termination (such as loan interest, credit card annual fees) are generally not refunded to the consumer after contract termination.

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