Consumer Policy in Korea and the Role of the KFTC April, 2011 Sung Kyung Je e-Commerce Protection Division

Contents Overview of Consumer Policy in Korea Introduction Inseparability of Consumer Policy and Competition Policy Consumer Policy of the KFTC Organization of Consumer Protection Bureau Major Works

Overview of Consumer Policy in Korea

Ⅰ. Introduction

1. History ~ 1970’s : Consumer protection was substantially ignored 1980’s : Consumer policies sprouted up ※ Enacting the Consumer Protection Act(1980), Monopoly Regulation & Fair Trade Act(1980) and Adhesion Contracts Act(1986) and establishing the Consumer Protection Board(1986) 1990’s : Consumer policies were more vitalized and matured in both quality and quantity than before ※ Enacting the Door-to-Door Sales Act(1991), Installment Transactions Act(1991) and Fair Labeling & Advertising Act(1999) and establishing the KFDA(1996) and Consumer Protection Bureau in the KFTC(1996) 2000’s : Consumer sovereignty has been upgraded continuously ※ Enacting the Product Liability Act(2000) and Consumer Protection Act on E-commer ce(2002) x

2. Administrative System MOFE : Coordinating consumer policies (Consumer Policy Deliberative Commettee) ※ Consumer Protection Board(non-governmental, supervised by MOFE) : Handling consumer complaints and research KFTC : Protecting consumers from deceptive & unfair business practices and frauds Other respective central ministries(KFDA): Enhancing consumer safety Local Government x

Other Ministries and Agencies (KFDA etc) CPDC MOFE KFTC Local Gov. C P B Business & Consumer

3. Substance Past & Present Future guardianship to vulnerable consumers ≥ creating environment where consumers can exercise their rights guardianship to vulnerable consumers ＜ creating environment where consumers can exercise their rights

Ⅱ. Inseparability of Consumer Policy and Competition Policy

Competition Consumer Policy 1. From the Viewpoint of Market Failures Competition Consumer Policy Cure of external factors to the consumer, making the market unable to provide sufficient options Cure of internal factors to the consumer, making the consumer unable to effectively choose among the available options

2. Competition Policy ⇒ Consumer Policy Regulation on an undue price increase of a monopoly Regulation on cartel among oligopolies Regulation on merger between consumer- goods manufacturers that could potentially create monopoly Regulation on unfair method of competition

3. Consumer Policy ⇒ Competition Policy Regulation on unfair business practice to consumers. Regulation on unfair labling and advertising : enhancing the effectiveness of competition

Consumer Policy of the KFTC

Ⅰ. Organization of Consumer Protection Bureau Director General Consumer Policy Div. Consumer Information Div. Contract Terms Policy Div. E-commerce Protection Div. Direct Sales Protection Div.

1. Consumer Policy division Establish and implement consumer protection policy Exchange information with consumer groups Cooperate on consumer problems internationally Operate the Consumer Gateway website, www.consumer.go.kr and the Consumer Ombudsman Operate monitoring staffs system Lead collective redemption of consumer damage Conduct education and PR activities to consumers and businesses

2. Consumer Information Division Enforce the Fair Labeling and Advertising Act Facilitate favorable access to consumer information Prevent and correct unfair labeling and advertising 3. Contract Terms Policy Division Enforce the Adhesion Contracts Act Review and correct unfair adhesion contracts Approve and distribute standard adhesion contracts

4. E-commerce Protection Division Enforce the Consumer Protection Act on E-commerce and investigate and correct undue/unfair trade practices Prevent unsolicited mails (Spam mail) 5. Direct Sales Protection Division Enforce the Door-to-Door Sales Act and investigate and correct undue/unfair trade practices Approve and monitor mutual aid association Establish the policies related to the Installment Transactions Act

Ⅱ. Major Works

1. Facilitation of Providing Consumers with Useful Information & Regulation on Undue/Unfair Labeling and Advertising

(1) Enforcement of the Fair Labeling and Advertising Act Facilitation of favorable access to consumer information Designation system of critical information to be included in labeling and advertising Guideline for comparative labeling and advertising Others : disclosure system of substantiating documents, prohibition of trade associations’ restricting labeling and advertising activities by members, etc.

(1) Enforcement of the Fair Labeling and Advertising Act (continued) Prevention of unfair labeling and advertising Substantiation system of labels and ads Temporary cease and desist order system Review of the voluntary code of labeling and advertising

(1) Enforcement of the Fair Labeling and Advertising Act (continued) Corrective measures on unfair labeling and advertising Prohibited unfair label and ad false or exaggerative/ deceptive/ unduly comparative/ slanderous labeling and advertising Administrative measures cease and desist order/public notification on the fact of receiving a administrative order for law violation/ corrective ads/ surcharge(not exceeding 2% of turnover or 500 million won)

(2) Others Operation of the Consumer Gateway website www.consumer.go.kr Operation of the Consumer Ombudsman system Education and PR activeties to consumers and businesses

2. Promotion of Using Adhesion Contracts containing Fair Terms and Conditions

major unfair clauses in adhesion contract (1) Enforcement of the Adhesion Contracts Act and correction of unfair adhesion contracts major unfair clauses in adhesion contract Provision that goes against principle of good faith Provision that gives immunity Restriction of cancellation, termination rights by consumer Restriction of consumer rights including right to refute, right to offset loss

(2) Approval and distribution of standard adhesion contracts Upon request by business or business association, the KFTC approves a standard adhesion contract that will serve as an example.

3. Consumer Protection in E-commerce

(1) Overview Characteristic of E-commerce:non face-to-face transaction, simultaneous advertisement and transaction With rapid development of E-commerce, various consumer protection issues have risen The “Consumer Protection Act on E-commerce” enacted July. 2002.

(2) Enforcement of the Consumer Protection Act on E-commerce Major contents of the Act Businesses’ obligation to preserve transaction records for a considerable period of time Businesses’ responsibility for arranging some measures to prevent consumer damage from consumer’s operational mistake Businesses’ obligation to disclose their identification, information, and terms of transaction on their internet shopping mall

(2) Enforcement of the Consumer Protection Act on E-commerce (continued) Consumers’ unconditional right to revoke their contract within 7 days. Credit card enterprises should help consumers to realize this right, if necessary Electronic payment issuers’ obligation to subscribe to consumer damage compensation insurance or payment guarantee contract with financial institutions Prohibition of businesses’ unfair and fraudulent behavior Introduction of the Escrow System

(3) Prevention of unsolicited mails Launch and reconstructure of the ‘No Spam’ site, www.nospam.go.kr (4) The KFTC’s investigation into illegal practices and administrative measures such as corrective measures, surcharge, and suspension of business

4. Consumer Protection in Special Types of Transactions

(1) Overview Characteristic : Salesman’s persuasion and temptation of benefit by direct marketng can cause impulsive buying Revised “Door-to-Door Sales Act ” in force as of July 2002.

(2) Enforcement of the Door-to-Door Sales Act Major contents of the act Regulation scope : door-to-door sales, multilevel sales, telemarketing by phone, continual transaction, business-inducing transaction Consumers, unconditional right to revoke their contract within 14 days. Credit card enterprises should help consumers to realize this right, if necessary Prohibition of providing false information on incomers to be earned to potential multilevel marketers by multilevel marketing businesses

(2) Enforcement of the Door-to-Door Sales Act (continued) Multilevel marketing businesses’ obligation to disclose information on support allowance to candidate marketers Multilevel marketing businesses’ obligation to subscribe to consumer damage compensation insurance, payment guarantee contract with financial institutions, or mutual aid contract with mutual aid association Prohibition of businesses’ unfair and fraudulent behavior

(3) Others Approval and supervision of mutual aid association for consumer damage compensation Operation of a database to enable information on door- to-door sales, multilevel marketing and distant selling businesses to exchange online The KFTC’s investigation into illegal practices and administrative measures such as corrective measures, surcharge, and suspension of business

5. Fairness in the Transactions based on Installment Contracts

(1) Overview Characteristic : “Credit” has become a new form of purchasing power which can cause impulsive purchase. Significant increase in consumer issues with rise in use of credit cards. The KFTC considers to revise the “Installment Transactions Act” to protect consumers more comprehensively

(2) Major contents of the Act Principle of executing installment contract in writing Consumers’ unconditional right to revoke their contract within 7 days Consumers’ right to refuse the payment of installment to a seller or a credit provider Prohibition of contract unfavorable to consumers