[Editorial] Scrap the Pro Rata Refund Policy Direction Harming Consumers and Threatening Contract Freedom

The Fair Trade Commission appears poised once again to unsheathe the blade of an anachronistic regulation. There is growing concern that it may force a “prorated refund policy” on subscription economy services that are typically billed on a monthly basis.

In short, this would be nothing less than armchair administration that undermines the very nature of subscription economy services. Under the FTC’s approach, if a malicious consumer pays a monthly subscription fee, uses the service intensively in a single day, and then requests a refund, the company would be left with no choice but to return the remainder of the fee.

In the case of free shipping services, for example, enormous losses would be expected for businesses. A company could end up providing dozens or even hundreds of free deliveries in a single day, only to receive payment for just one day’s worth of service.

Similar harm can be expected in OTT services as well. If a user binge-watches multi-part content in one day and then receives a prorated refund, the company would end up earning only a few hundred won in service fees. Can this truly be called a subscription economy structure consistent with common sense?

If a prorated refund policy becomes reality, subscription service providers will ultimately have no choice but to drastically reduce the total scope of services available for use in a single day. Consumers who use subscription services only about one day a week, for instance, would instead suffer disadvantages. In the end, the harm would be passed on to the majority of consumers.

Of course, subscription service companies have a duty to faithfully explain to consumers the conditions for mid-term cancellation and their refund policies. If a company violates that duty, it would be appropriate for the FTC to take action.

However, the idea of controlling today’s subscription services based on the Act on Door-to-Door Sales, enacted as many as 22 years ago in relation to facility-use passes for places such as gyms and swimming pools, is, in a word, close to going backwards.

Moreover, in essence, the FTC has no authority to intervene in contracts privately concluded between businesses and consumers. Conditions for mid-term cancellation and refund policies clearly fall within the realm of private transactions. Under the banner of “consumer protection,” the FTC’s indiscriminate imposition of regulations that tighten the screws on businesses only ends up distorting the structure of the domestic business economy.

The FTC must completely withdraw its policy of forcing prorated refunds on subscription service companies. We hope the FTC does not end up being criticized for causing the decline of South Korea’s subscription economy.

2024. 6. 3.

Center for Free Enterprise (CFE)

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Original title: [논평] 선의의 소비자 불이익 초래하고 거래자유 위협하는 일할계산 환불정책 방침, 즉각 백지화하라

Author: Center for Free Enterprise (CFE)

Date: 2024-06-03

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=comment&pn=2&idx=26700