The Fair Trade Commission is seeking to amend the law to prevent the advance payments of burial service companies from becoming a "financial lifeline" for affiliated corporations. Recently, the scale of advance payments by these companies has frighteningly approached "10 trillion won," and concerns have been raised that the legal framework regulating this financial operation is inadequate.

A Fair Trade Commission official noted on the 31st, "There is a consensus that the current installment sales law system is insufficient to prevent moral hazard among burial service providers," adding, "It is necessary to improve the system to prevent burial service companies from lending advance payments at low interest rates to related parties, like affiliated companies or the owner’s family."

View of the Fair Trade Commission at the Government Sejong Square in Sejong City. /Courtesy of News1

Burial service companies receive advance payments from customers in preparation for future funeral procedures. As the scale of these advance payments increases, there is a lack of regulation to protect consumers when burial service companies enter bankruptcy or rehabilitation processes, leading to issues like "eating and running." In response, the Fair Trade Commission amended the installment sales law in 2010 to mandate that 50% of advance payments be deposited in banks or mutual aid associations.

Currently, there are almost no regulations on the management of advance payment funds other than those in place. According to the Fair Trade Commission, as of March last year, the scale of these advance payments increased to 9.4486 trillion won, and it is estimated that it has recently surpassed "10 trillion won." This implies that a fund amounting to 5 trillion won is outside regulation.

The Fair Trade Commission's mention of "inducing responsible management among burial service providers and improving the system to prevent insolvency" in this year’s work report is also related to this issue. The Fair Trade Commission diagnosed that common features of this fund management method have emerged not only among recently bankrupt burial service companies but also among those currently in operation.

A Fair Trade Commission official stated, "Advance payments that need to be returned to customers are used in various businesses, and if the company goes bankrupt and is not able to return them, it ultimately leads to consumer harm," adding, "We are looking to push for amendments to the installment sales law to strengthen financial soundness regulations for burial service companies."

Trends in the prepaid installment trading industry for the years 2017 to 2024 (as of March). /Courtesy of Fair Trade Commission

The fact that Daemyung Station, which falls within the 'top 5' of the burial service industry, has its advance payments utilized as a financial source for subsidiaries within Daemyung Sonogroup is a representative example of this issue. The scale of Daemyung Station's advance payments was 1.2125 trillion won as of two years ago.

Daemyung Station's advance payments were used between 2017 and 2022 for long-term and short-term lending to group subsidiaries like Daemyung Tour Mall, Jeju Animal Theme Park, Searen Partners, and Sono International. Some have been recovered, but some have been written off or turned into bad assets. Concerns have arisen in the industry that this method of fund utilization could ultimately lead to increased financial burdens for Daemyung Station.

However, the Fair Trade Commission has not yet specified how to regulate this misuse issue. Among the suggestions among experts, there are two main methods being discussed: either raising the 50% mandatory deposit rate for advance payments or imposing restrictions on the investment purposes of the remaining advance payments outside of deposits.

On the other hand, voices are being raised in the industry cautioning against generalizing the deviations of some companies. There are also arguments that the burial service sector should not be viewed solely from a consumer protection perspective, but also from an industry development perspective. Given that the backlash against regulation is not insignificant, the process of legal amendment in the future is expected to be challenging.