[Sejong=Asia Economy Reporter Joo Sang-don] The franchise headquarters Car and People, which forced franchisees to purchase even sponges and car wash towels, has been sanctioned by the Fair Trade Commission.
The Fair Trade Commission announced on the 9th that it decided to impose a corrective order (including a future recurrence prevention order and an education implementation order) and a fine of 3 million won for Car and People’s violation of the Franchise Business Act by forcing franchisees to purchase 52 items unrelated to maintaining the uniformity of the franchise business only from them.
According to the Fair Trade Commission, from April 2016 to June 2020, Car and People effectively forced purchases by terminating franchise contracts if franchisees did not buy 52 items such as car wash towels and sponges, which do not affect the provision of standardized car wash services, from the headquarters even if they purchased them through other channels.
The Franchise Business Act generally prohibits such acts. However, exceptions are allowed only when necessary to maintain the quality and uniformity of services. The Fair Trade Commission judged that the items sold by Car and People were products that could be purchased at large marts without issue.
The Fair Trade Commission confirmed that the franchise headquarters completely blocked franchisees’ option to purchase at lower prices from other sellers and sold the items at prices higher than market prices by adding margins of 8 to 56%, even though they could have supplied them cheaper through bulk purchases. For example, the original cartridge for vacuum cleaners was sold by Car and People to franchisees at 26,000 won, but it was available for 17,200 won, 8,800 won cheaper, on online shopping malls.
Car and People also failed to provide disclosure documents and franchise contracts in advance. From December 2016 to February 2019, they signed franchise contracts with 34 prospective franchisees without providing disclosure documents, information on 10 nearby franchise stores, and franchise contracts. This violated the obligation to provide prospective franchisees with franchise business status, franchisee burdens, nearby franchise information, and franchise contracts at least 14 days before contract signing so that they can reasonably decide on opening based on sufficient information and contract details.
Additionally, Car and People violated the obligation to deposit franchise fees in designated financial institutions such as banks to prevent potential damages to prospective franchisees arising from the headquarters not starting the franchise business or providing operational support after receiving the franchise fees. From December 2016 to February 2019, they received franchise fees (4 million to 11 million won) directly into their corporate account without depositing them in designated financial institutions while contracting with 34 prospective franchisees. Furthermore, Car and People did not set the franchisees’ business areas in the contracts signed with these 34 prospective franchisees during the same period.
A Fair Trade Commission official said, “This action corrects and sanctions the franchise headquarters operating a mobile car wash franchise business for forcing franchisees to purchase items unrelated to maintaining the uniformity of car wash services, unfairly restricting franchisees’ options to purchase more cheaply through various channels.” He added, “The Fair Trade Commission will closely monitor various unfair trade practices by franchise headquarters that exacerbate franchisees’ difficulties and will strictly sanction violations according to the law.”
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