Fair Trade Commission Orders Crowdfunding Platform "Wadiz" to Amend Terms to Assume Liability for Negligence

[Asia Economy Reporter Joo Sang-don] Going forward, Wadiz, a brokerage platform operator, will be held liable for damages to customers related to the main services it provides if its intentional or negligent fault is recognized.

The Fair Trade Commission announced on the 4th that it reviewed the 'Funding Service Terms and Conditions' and 'Funding Refund Policy' of Wadiz Platform, a crowdfunding brokerage platform operator, and corrected three types of unfair contract terms.

The crowdfunding market has rapidly grown, increasing more than 12 times from about 25 billion KRW in 2016 to about 310 billion KRW in 2019. However, concerns have been raised recently about consumer damages increasing as reward-based crowdfunding transactions involve mass-produced products already distributed in the market instead of new idea products. According to the Korea Consumer Agency, the number of damage relief requests related to crowdfunding has steadily increased from 1 case in 2017 to 22 cases in 2018, 66 cases in 2019, and 86 cases in 2020.

In September last year, the Fair Trade Commission received a report on Wadiz, the top domestic crowdfunding brokerage operator, and conducted a review on clauses that limit refunds for defective products, exempt the operator from liability, and prohibit cancellation of funding after the funding period ends.

Wadiz agreed to voluntarily correct the problematic terms by the end of October this year during the terms review process.

Supporters, who are the fund providers, could only cancel funding before the end of the funding period. After the funding period ended, cancellation was not possible. The Fair Trade Commission judged that when overseas distributed products are the funding target, the transaction structure and method are only in the form of funding, but the substance of the transaction is no different from sales through e-commerce, so it is reasonable to recognize rights such as withdrawal of offer and refund under the Electronic Commerce Act. However, for products not yet marketed domestically or overseas, allowing cancellation after the funding period ends would make the scale of funding uncertain afterward, potentially disrupting the maker’s reward production and causing unforeseen damages even to other supporters who did not cancel. Therefore, the necessity to restrict funding cancellation was acknowledged.

Accordingly, overseas distributed products will be distinguished and separated into a 'distribution' category rather than funding, and policies (terms) applying the Electronic Commerce Act regarding product refunds and delivery will be applied.

Unfair clauses exempting the operator from liability will also be corrected. Wadiz had not been held responsible during the funding contract mediation process on the grounds that it was not a party to the funding contract unless there was intentional or gross negligence. The Fair Trade Commission ruled that even if the cause of the customer’s damage lies with the customer or a third party, if Wadiz’s intentional or negligent fault is concurrent in the process, it cannot exempt itself. Accordingly, the terms were revised to hold the company liable under the law if there is intentional or negligent fault.

The clause limiting refund requests for defective products will also be corrected. Wadiz allowed refund requests for funding money through Wadiz if the 'reward,' which is a tangible product or intangible service promised by the maker to the supporter in relation to funding, had defects, but limited the application period to within 7 days from the reward receipt date.

The application period was extended to allow refund requests within 14 days from the day the reward was received, and it was explicitly stated that the maker’s liability is not exempt even after this period has passed.

A Fair Trade Commission official said, "By correcting the unfair terms of Wadiz, the number one crowdfunding brokerage platform operator in Korea, we expect to improve unfair practices in the industry and protect users’ rights and interests. The Fair Trade Commission will continue to monitor unfair terms in new transaction types such as crowdfunding and strive to enhance consumer rights in related fields."

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