SEOUL: Korea’s Fair Trade Commission (FTC) has ordered nine auto finance lease operators to eliminate five unfair terms and conditions that shift costs onto borrowers.
The nine operators are both foreign and local financial companies that specialize in financing cars: Hyundai Capital, BMW Financial Services Korea, Mercedes-Benze Financial Services Korea, Shinhan Capital, Samsung Card, Hana Capital, BNK Capital, Lotte Capital and Shinhan Card.
In its ruling the FTC said that practices such as making lessees pay for parts of the car’s acquisition and registration taxes infringe on local tax codes, which state that a car’s taxes are supposed be paid by its owner, in this case the lease company. The agency claimed lessors made consumers pay about 7% of each rented cars rate in purchase and registration taxes.
Under tax law, the auto funding companies managing auto leases need to cover the purchase tax, although the lease cars are registered under the customer’s name.
The FTC said that the nine companies have engaged in unfair business practices such as charging extra fees before the user actually picks up the leased car, by timing the date of the lease from the release of the invoice; making lease customers take responsibility for damage done to a vehicle before they receive it; and limiting customers’ ability to receive their lease deposits back.
The FTC did not levy any fines, but ordered the companies register revised terms and conditions with the Financial Supervisory Service (FSS) by mid-May and immediately start using the new terms after the FSS’s approval.
After the new terms go into effect, all nine lease service operators will have to exclude acquisition and registration taxes from the consumer fees. Hyundai Capital, BMW Financial Services, Shinhan Capital, Shinhan Card, Samsung Card and Mercedes-Benz Financial Services will have to begin charging consumers at the point when they pick up their car, instead of when they sign the lease document or register for lease insurance.
Lotte Capital and Shinhan Card were ordered to eliminate a clause that made the lease consumers fully responsible for damage done to the car by other drivers before they even signed the lease contract.
According to the Credit Finance Association, the local auto lease market has grown over the past few years to 6 trillion won in 2013 from 4 trillion won in 2009, as the number of individuals leasing automobiles has been on the rise.
At the same time, the number of complaints filed with consumer agencies has doubled, reaching 607 incidents in 2013, up from 304 in 2010. Most of those complaints involved terms and conditions written to benefit lease companies, and the FTC said its ruling was intended to remove the causes of contention in between lease companies and consumers by improving the information given to prospective customers.
Mercedes-Benz Financial stated the company has acknowledged the requirement for modification in its lease policy and filed its modified variation with the FSS, while BMW Korea said it will certainly fix its lease policies as advised.
