With 11 trillion won in prepaid funds and 11 million subscribers to funeral services, the government is stepping in to address concerns over mismanagement by funeral service companies. This move aims to prevent customer funds from being misappropriated by major shareholders and their affiliates.
According to the Fair Trade Commission, as of the end of March this year, there are 76 registered prepaid installment service providers, with a total of 11.31 million contracts. The amount of prepaid funds collected from consumers has reached 11.3544 trillion won.
While funeral service companies are required to deposit 50% of prepaid funds and maintain a minimum capital of 1.5 billion won, they have not been obligated to regularly disclose or be supervised regarding their capital soundness. This has led to instances where funds were lent to major shareholders, their spouses, affiliates, or executives for private use. There have also been cases where prepaid funds were invested in high-risk assets, resulting in significant losses.
At a National Assembly audit on October 12, Fair Trade Commission Chairman Joo Byeong-ki stated, "We will actively improve unreasonable trading practices, including the opaque management of prepaid funds in the funeral service sector," signaling the government's commitment to reforming fund management.
The industry believes that the revised installment sales law, which took effect on September 8, will serve as a minimum safety measure for managing prepaid funds. The amendment limits credit extensions to major shareholders and related parties of prepaid installment service providers to 50% of their capital. It also mandates quarterly disclosures and reports on credit extension status.
On September 30, the Fair Trade Commission held a meeting with major prepaid installment service providers, urging them to take a leading role in complying with the revised law by establishing plans for recovering credit extensions.
A lawyer specializing in fair trade from a major law firm noted, "The revised installment sales law is significant in formalizing the operations of funeral service companies," adding that companies are now revising their terms and operational regulations to better protect consumers.
Mismanagement by funeral service companies can lead to bankruptcies, resulting in consumer losses. According to data received by the office of Democratic Party lawmaker Park Hong-bae from the Fair Trade Commission, 22 funeral service companies have either gone bankrupt or had their registrations canceled in the past five years, from March 2021 to March this year, with a total of 566.17 billion won in prepaid funds.
While a compensation system allows consumers to recover up to half of their prepaid amounts if a funeral service company goes bankrupt, the system is not well-known, leading to cases where claims are missed. According to the Board of Audit and Inspection and the Fair Trade Commission, 10.2 billion won in compensation has not been returned to consumers from 2020 to August this year.
* This article has been translated by AI.
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