Past five-year violation history to factor into penalty levels; cooperation discounts cut from 20% to 10%; base rates for serious false-advertising violations raised

Companies that repeatedly break the law in door-to-door sales, labeling and advertising, and installment transactions will face surcharges up to 100% higher than the base amount — double the previous 50% ceiling — while the discount available for compensating consumer victims will be cut from 30% to 10%.

The Korea Fair Trade Commission said Tuesday that the Cabinet approved amendments to the enforcement decrees of three consumer-protection laws: the Door-to-Door Sales Act, the Act on Fair Labeling and Advertising, and the Installment Transactions Act.

The Korea Fair Trade Commission office at the Government Complex Sejong in Sejong [Newsis]
The Korea Fair Trade Commission office at the Government Complex Sejong in Sejong [Newsis]

The revised decrees take effect July 1, together with the surcharge public notices for the three consumer laws that were pre-announced for administrative comment in March.

The toughest changes target repeat violators. The surcharge enhancement ceiling rises from 50% to 100%, and the lookback window expands from two or more violations within the past three years to any violation within the past five years.

Under the new scale, one prior violation in the past five years triggers a 40–50% enhancement; two violations, 50–70%; three violations, 70–90%; and four or more violations, 90–100%.

The criteria for reducing surcharges are also tightened. The maximum discount available for compensating consumer victims drops from 30% to 10%.

Under the Door-to-Door Sales Act and the Installment Transactions Act, a reduction of up to 10% will be granted only when a company has substantially compensated victims or otherwise largely reversed the effects of the violation. If such remediation occurs after an investigation has begun or after a review report has been sent, the applicable discount may be further reduced. The Act on Fair Labeling and Advertising will likewise limit the reduction to 10% and only where consumer harm has been substantially compensated; the existing tiered reduction provisions will be abolished.

The discount for cooperating with investigations and deliberations is also cut from a maximum of 20% to within 10%. Going forward, a reduction will be available only to companies that actively cooperate throughout the entire process — from investigation through deliberation — and acknowledge the facts of the violation until the hearing concludes. A separate provision allowing discounts for companies that exercised considerable care to avoid violations will be eliminated.

The base-rate structure for surcharges under the Act on Fair Labeling and Advertising is also being overhauled. For unfair labeling and advertising calculated against related revenue, the base rate for very serious violations rises from 1.6–2.0% to 1.8–2.0%, and the rate for serious violations rises from 0.8–1.6% to 1.5–1.8%. Less serious violations will be broken into two sub-tiers: a scoring index of 1.3 or above but below 1.6 will carry a rate of 1.0–1.5%, while a score below 1.3 will carry 0.1–1.0%.

The fixed-amount benchmarks applied when related revenue is difficult to calculate are also being raised. Very serious violations will carry a benchmark of 450 million to 500 million won (about $325,000 to $362,000); serious violations, 350 million to 450 million won; and less serious violations, 5 million to 250 million won or 250 million to 350 million won, depending on the scoring index.

The Fair Trade Commission said it expects the revised decrees and updated surcharge notices to strengthen deterrence against violations in door-to-door sales, labeling and advertising, and installment transactions, while reinforcing competitive market order and consumer rights protection.


y2k@heraldcorp.com