"Scale Has Grown but Consumer Risk Remains" ... Caution When Joining Sangjo Companies

Investigation Results on Advance Payments, Contract Numbers, and Financial Soundness of Funeral Service Companies in Seoul Revealed
93% Concentrated in Large Companies with Assets Over 50 Billion Won ... Need for Supplementing Safety Guarantee Guidelines

[Asia Economy Reporter Jo In-kyung] Although the scale and number of contracts of funeral service companies operating in Seoul have increased, some still have weak financial soundness or have had their registrations canceled due to legal violations, so consumers should exercise caution when signing up.

According to a written survey by the Seoul Metropolitan Government on the 8th, the total amount of advance payments held by 38 funeral service companies in the Seoul area reached 4.8978 trillion KRW as of the end of June, an increase of 14.1% (605.9 billion KRW) compared to the same period last year. The total number of contracts for these companies was 5.5 million, up 10.9% (540,000 contracts) over one year.

Among the 38 companies, 34 (89.5%) have been in operation for more than five years. On the other hand, of the four companies with less than five years of operation, three were managing only existing members without attracting new ones, and no new companies were registered in the past year, indicating that new entry into the funeral service sector is difficult.

The polarization phenomenon in the funeral service market continues, with 92.5% of total contracts and advance payments concentrated in the top 17 large companies with assets of 50 billion KRW or more. Among these 17 companies, 10 have assets exceeding 100 billion KRW, and their advance payments account for 82.3% (4.0286 trillion KRW) of the total, with total contracts making up 81% (4.46 million contracts) of the overall market.

The 'total customer refund obligation amount' of 37 companies that submitted data averaged 68.1% of advance payments, exceeding the legal mandatory reserve ratio of 50%. Funeral service companies are required by the Installment Transactions Act and its enforcement decree to reserve 50% of advance payments in banks or mutual aid associations. However, the total customer refund obligation amount, which must be refunded if all customers request cancellation simultaneously, is much higher than the legally reserved amount for most companies.

The 'liquidation assumption refund rate (solvency ratio),' which indicates the medium- to long-term refund capability of funeral service companies for consumer advance payments, averaged 88%, down 2.3 percentage points from 90.3% in the same period last year.

The Seoul Metropolitan Government pointed out, "The legal mandatory reserve ratio of 50% under the Installment Transactions Act is only the minimum ratio protected by law, and additional safety guarantee guidelines are needed for the 939.5 billion KRW difference between this legal reserve amount and the total customer refund obligation amount that should rightfully be refunded to consumers." It also plans to recommend to the Fair Trade Commission to establish guidelines for the stable management of this amount, considering the risk of consumer damage.

Meanwhile, Seoul canceled the registration of one funeral service company that submitted false documents to a bank through forgery and unauthorized withdrawal of advance payments. This company was found to have violated the Installment Transactions Act by breaching the mandatory deposit ratio and failing to pay cancellation refunds. It was also revealed that the company and its representative forged documents to withdraw deposits without consumer cancellation requests, leading to their prosecution.

The Seoul Metropolitan Government advised consumers to check information about the company on the Fair Trade Commission’s 'Find My Funeral Service' website before signing up, as unexpected damages may occur after joining funeral service products. It also recommended regularly verifying whether the 50% deposit reporting is being maintained after enrollment.

Park Ju-seon, Director of Fair Economy at the Seoul Metropolitan Government, said, "The mandatory reserve ratio under the Installment Transactions Act is the minimum obligation for funeral service companies, and managing financial soundness by considering the total customer refund obligation amount is a social responsibility of these companies. We will urge funeral service companies to improve financial soundness and conduct on-site inspections so that consumers can use funeral services with confidence."