Seoul City Detects Operation of Non-Cancellable Funeral Service Combination Products... Issues 'Consumer Damage Warning'

Indicating Non-Cancellation Clause in Sangjo Combination Product Terms, Refusal of Contract Cancellation... Infringement of Sangjo Contract Cancellation Rights
City Conducts Ex Officio Investigation and Administrative Action on Sangjo Companies... Caution Required for Similar Cases

[Asia Economy Reporter Lim Cheol-young] The Seoul Metropolitan Government recently received reports of cases where contract cancellations for prepaid funeral service products were refused. In response, it investigated major domestic funeral service companies, issued corrective recommendations and fines, and issued a consumer damage advisory, anticipating similar cases among subscribers of other funeral service companies.

According to Seoul City on the 21st, the identified company A did not employ separate sales agents for funeral service products but sold these products online or through multi-level marketing (MLM) sales agents of its subsidiary MLM company, who recruited lower-level agents to subscribe customers to the funeral service products. The company sold bundled funeral service products that included both the funeral service and cash-equivalent points worth several million won, which could be used at an online product mall operated by an affiliated company. However, when customers sought to cancel the funeral service contract due to circumstances, they were informed that unless they returned the amount equivalent to the previously issued cash-equivalent points, they could not cancel even the funeral service product itself, violating the Installment Transactions Act.

Bundled funeral service products combine funeral service products with cash-equivalent points, home appliances, or other life service installment sales contracts. While funeral service companies previously sold only pure funeral service products, recently, considering customer demand and diversifying promotional methods, there has been a growing trend to sell these products bundled with other installment sales products.

Company A simultaneously sold bundled funeral service products to funeral service subscribers, distributing separate terms and conditions for the funeral service and the bundled products. The bundled product terms included a clause prohibiting contract cancellation, which was used as a basis to prevent cancellation of the funeral service contract as well. Seoul City revealed that the number of bundled funeral service product contracts affected by the problematic terms violating the Installment Transactions Act reached approximately 45,000 cases.

The Installment Transactions Act stipulates that consumers who enter into prepaid installment funeral service contracts and have not received the contracted funeral services may cancel the contract. The Terms and Conditions Regulation Act declares any clause excluding this cancellation right invalid.

Nevertheless, when selling funeral service products bundled with other products, the company included a clause in the bundled product terms stating that the contract could only be canceled if the principal of the bundled product was paid in full at once. When consumers requested contract cancellation, they were informed that unless they paid the bundled product principal in a lump sum, the funeral service contract could not be canceled, allowing installment payments to continue and effectively infringing on the right to cancel the funeral service contract.

In cases of funeral service contract cancellation, the Fair Trade Commission’s notice sets the refund rate, so depending on the contract content and duration, consumers may not receive a full refund of the installment payments made. However, if consumers request cancellation even if they only receive the refund amount according to the refund rate, cancellation is possible.

Additionally, according to the Installment Transactions Act, funeral service products cannot be contracted through multi-level marketing sales methods. However, company A’s subsidiary MLM sales agents mediated funeral service product contracts. Despite this, during ongoing disputes, the company sent warning letters to victims stating that credit delinquency registration was possible based on the non-cancellation clause in the contract. Furthermore, Seoul City informed that under Article 24 of the Installment Transactions Act, consumers can withdraw from the contract without penalty within 14 days of receiving the funeral service contract.

Accordingly, the city emphasized that in disputes related to cancellation or withdrawal of prepaid installment funeral service contracts, it is advisable to send a certified letter to the company headquarters documenting the claims and timing of requests and notifications. This helps prevent delays or refusals in dispute resolution by the company.

Meanwhile, Seoul City plans to conduct ex officio investigations and request criminal investigations for violations of the Installment Transactions Act if illegal business practices such as issuing unlawful terms continue to be repeated and appropriate measures are deliberately delayed.

Lee Byung-wook, Director of Fair Economy at Seoul City, stated, “Prepaid installment funeral service products and bundled funeral service products often involve long-term contracts for future services without a specific service provision date. Therefore, disputes related to contract cancellations may arise at any time during the contract period. We will do our best to prevent illegal activities and the expansion of consumer damages that may occur accordingly.”

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