[금소법 10문 10답] Cancellation of illegal contract, loss of money cannot be returned

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The controversy over the Financial Consumer Protection Act (hereinafter referred to as the Financial Protection Act) in effect from today is hot. Financial authorities are in a position that they are an unavoidable choice to protect consumers’ rights, but due to the belatedly finalized enforcement ordinances and supervisory regulations, financial companies are stopping whether to provide innovative services such as non-face-to-face financial products. How much can a consumer’s rights be protected by the right to terminate illegal contracts introduced in the face of controversy? Answer your curiosity with 10 questions and 10 answers related to the gold law.

① What is the scope of the seller’s money return when the consumer exercises the right to terminate the illegal contract?

The biggest concern is the right to terminate illegal contracts. An illegal contract termination right is a right that allows a consumer to terminate a contract in the middle of a contract in case a financial company violates the six sales regulations, including the principle of conformity, the duty to explain, the principle of adequacy, the prohibition of unfair business and the prohibition of unfair solicitation. It can be exercised within 5 years from the date of the contract and within 1 year from the date of knowledge of the violation. The point is that the fact that it is not an illegal contract must be proved by the financial company, not the consumer.

However, even if the contract is canceled due to illegal reasons, investment losses that occurred before the time of cancellation cannot be refunded. The same goes for loan interest, card annual fees, fund fees and fees, and risk insurance premiums. However, the seller cannot impose an interim redemption fee, redemption fee, or penalty.

Specifically, for example, if the deposit is terminated due to an illegal contract, the interest rate at maturity higher than that point is applied. Loans, leases, and installment financing cannot charge prepayment fees, but interest already paid by consumers is not refunded. Funds are also unable to charge an intermediate redemption fee, but fees or remuneration paid in transactions prior to the time of termination cannot be returned. In the case of insurance, when the illegal contract is terminated, the amount accumulated before the time of termination for the payment of the insurance premium among the paid insurance premiums and interest on it may be refunded. However, costs (risk insurance premiums and supplementary insurance premiums) for risk guarantee, contract conclusion, maintenance, etc. up to the point of termination are excluded.

② What are the criteria for judging small claims dispute mediation?

If the dispute settlement price is less than 20 million won, filing a lawsuit by financial companies is also prohibited. It is the so-called small-income dispute mediation prohibition system. The Law provided a means for financial companies to file lawsuits in order to avoid dispute settlement so that’general financial consumers’ would not have difficulty in remedy.

③ Is there a specific guideline for the fulfillment of the obligation to familiarize yourself with the product?

The law also stipulates that the sale of products by persons who have not been trained to perform duties in accordance with internal control standards is an unfair solicitation act. For the judgment on whether or not to implement it, financial companies were forced to establish individual standards.

④ Do you have to provide written instructions?

When selling financial products, instructions to be provided to consumers can be delivered in writing, by mail (including e-mail), or by text message. It is also possible to provide a manual through the screen of an electronic device such as a mobile app or tablet. However, if the consumer also understands the seller’s explanation, the fact must be confirmed by signing, stamping, and recording.

⑤ Is there a specific regulation on the core manual in the law?

Financial firms should also have a key description that makes it easy to understand the content and important parts of complex contracts. The core manual should contain △ differentiated characteristics from similar products △ matters regarding disadvantages that may occur after the contract, such as disadvantages in case of a risk rating or overdue principal and interest, △ contact information that can be used when a complaint or consultation is required. In this regard, each financial industry association plans to prepare a standard draft during the first half of the year.

⑥ Will the investment propensity evaluation result not change once it is decided?

The Financial Consumer Act requires consumers to be judged appropriately to determine their investment grade. Financial firms must determine whether oil-free products are suitable for consumers by comprehensively considering age, financial situation, understanding of financial products, and investment experience. Financial companies also need to check from customers whether the information is false or not. However, the seller is not obligated to submit data proving the information to the consumer.

The conformity principle stipulates that consumers should not recommend products that do not match after determining the consumer’s investment grade in this way.

⑦ Are employees of financial companies also subject to fines or punitive penalties?

If financial products are sold in violation of the six regulations, fines and punitive fines will be imposed. The fine is up to 100 million won. The punitive penalty is 50% of the maximum income for only four regulations excluding the conformity principle and the adequacy principle.

However, for violating the six sales regulations, no fines or penalties are imposed on employees.

⑧ If there is any high-risk product in the investment product portfolio that is not suitable for the consumer, is it not recommended?

Financial companies should also prepare risk ratings for funds or investment products and include them in their instructions. This includes the volatility of the underlying asset and the maximum possible principal loss. In the case of financial instruments composed of multiple funds, the risk rating is not significantly different from the existing provisions of the Capital Markets Act. The overall risk rating of the constituent funds can be combined and evaluated.

⑨ It is difficult to establish internal control standards in line with the enforcement date of the law.

The internal control standard that financial companies must establish for consumer protection is the effective date of September 25. After the standards for internal control are established before the effective date, they can be confirmed through necessary procedures such as a general shareholders’ meeting or the board of directors. The main items to be included are similar to the’Financial Consumer Protection Best Practices’, which is the administrative guidance of the Financial Supervisory Service. In this regard, each financial industry association plans to establish standards by establishing an internal control standards committee by the first half of this year.

⑩ How is the gold law applied to Saemaul Geumgo, Nonghyup, Suhyup, and Forestry Cooperatives?

The application of the gold law for mutual finance such as Nonghyup, Suhyup, Saemaul Geumgo, and Forestry Cooperative is currently under discussion by relevant ministries. Because the current supervisory and sanctions system was not reflected, it was excluded from the scope of the law. For example, the Saemaul Geumgo Central Assembly is supervised by the Financial Services Commission, but the authority for institutional action lies with the Ministry of the Interior and Government.

In this regard, the Financial Services Commission has been reviewing the application of the law enforcement agency with relevant ministries since last October. The Financial Services Commission’s plan is to come up with a related plan in April.

/ Reporter Kim Sang-hoon [email protected]

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