[Opinion] Three Improvement Directions for Financial Dispute Resolution Systems After the Geumso Act

Seong Hee-hwal, Professor at Inha University School of Law

30,000 cases. This is the annual number of financial disputes handled by the Financial Supervisory Service. Efficient resolution of financial disputes is crucial for promptly alleviating the suffering of financial consumers and achieving desirable remedies. Considering the rapidly increasing number of lawsuits and the limitations of court capacity, enhancing the function of the Alternative Dispute Resolution (ADR) system is urgent. One of the main purposes of the Financial Consumer Protection Act (FCPA), enacted in 2020, was also the efficient resolution of financial disputes. Although the current FCPA has introduced advanced systems for resolving financial disputes, many unfinished tasks remain. The following opinions are presented regarding improvement measures.

First, the proposal to establish an Integrated Financial Dispute Resolution Organization aims to consolidate the overlapping dispute mediation functions currently scattered across the Financial Supervisory Service, Korea Exchange, Korea Financial Investment Association, and others, and to establish a separate independent organization apart from these institutions. Why is an independent integrated organization necessary? There are several reasons for the need to introduce an Integrated Financial Dispute Resolution Organization, but above all, the conflict of interest between business conduct regulation and dispute mediation functions is significant.

The fundamental principle required for dispute mediation is fairness, which means a fair and objective judgment that does not favor either party in the dispute. However, if an institution with regulatory authority over business conduct also performs dispute mediation functions, it may use dispute mediation as a means of sanction to enforce the authority of the regulatory division, or conversely, transfer information obtained during the mediation process to the regulatory division for investigation and sanctions. Consumers’ expectations or demands appealing to the power of the regulatory agency may become excessively high, potentially resulting in populist mediation decisions (such as 100% compensation). In any case, while this may help the performance of regulatory functions or the authority of the institution, it undermines the neutrality and objectivity of dispute mediation decisions, making it impossible to guarantee fairness. This will lead to avoidance of the dispute mediation system. Major countries considered models of ADR, such as the United States, the United Kingdom, Australia, and Canada, also conduct private dispute resolution through separate organizations independent from financial regulatory agencies.

Second, arbitration systems have both advantages and disadvantages. It is undeniable that arbitration is the fastest and most effective out-of-court dispute resolution method, but applying mandatory arbitration clauses in cases with severe information and power imbalances, such as between financial companies and financial consumers, is undesirable. In the United States, mandatory arbitration based on prior agreements has been criticized for violating the constitutional right to a trial, and accordingly, the Dodd-Frank Act of 2010 prohibits mandatory arbitration clauses in certain cases (for example, mortgage loan disputes) or sets requirements for fair arbitration in other cases.

In Korea, arbitration systems have been introduced as dispute resolution methods for domestic and international commerce, media, medical, and automobile-related disputes. The financial sector, with its complexity, expertise, and overwhelming number of cases, has no reasonable grounds to avoid arbitration systems. It is necessary to positively consider arbitration systems on the premise of forming a fair arbitration committee to ensure that the interests of financially vulnerable consumers are not infringed.

Third, granting one-sided binding force to dispute mediation decisions is difficult because it directly infringes on the constitutional right to a trial in Korea. In major countries such as the United States and Japan, where the constitutional right to a trial is recognized, one-sided binding force is rarely acknowledged. However, mandatory pre-mediation, which requires dispute parties to first undergo mediation by a dispute resolution institution before filing a lawsuit in court, does not deprive the right to a trial by a judge and can be implemented without controversy over infringement of the right to a trial.

Seong Hee-hwal, Professor, Inha University School of Law

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