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Lee Jae-myung’s pledge to beef up FSS’ power on insurance disputes raises eyebrows

Lee Jae-myung, the upcoming 2022 presidential election candidate of the ruling Democratic Party, attends an event held in Seoul on Monday. (Yonhap)
Lee Jae-myung, the upcoming 2022 presidential election candidate of the ruling Democratic Party, attends an event held in Seoul on Monday. (Yonhap)
A campaign pledge by ruling party presidential candidate Lee Jae-myung has sent jitters through the finance sector as he vowed to hand the nation’s financial watchdog stronger legal authority to side with consumers when settling disputes with insurers.

The ruling party’s presidential election campaign committee on Friday announced that Lee seeks to ban insurers from not conceding to orders from the Financial Supervisory Service to financially compensate their customers without a “justifiable reason.” The rule would apply to disputes valued at or worth below 20 million won ($16,600) each. The committee added that the revision would be eventually extended all financial institutions.

The move to give the FSS more clout in dispute settlement between financial institutions and their customers has been a key issue since 2008. At the moment, FSS rulings only take effect after both the institution and the customer decide to accept it.

Former FSS Gov. Yoon Suk-heun -- known as a hard-line reformist of the financial industry who revived the watchdog’s authority to conduct comprehensive inspections -- had pursued the legalization of the matter before stepping down in May. Yoon’s pursuit had put the FSS’ relations with the policymaking Financial Services Commission and the financial companies on a rocky road. Former FSC Chairman Eun Sung-soo, whose term coincided with Yoon’s, questioned the then Yoon’s motives at the time, saying that “while it is understandable from the aspect of consumer protection, it would deprive the financial institutions of their right of access to court.”

A Seoul court last year ruled in favor of Woori Financial Group Chairman Son Tae-Seung, who filed a lawsuit against the FSS in a bid to nullify the sanctions imposed on him for the group’s flagship bank’s misselling of high-risk derivative-linked funds. Son was held responsible by the FSS as CEO of Woori Bank at the time when they sold the controversial products to its customers in 2020, which led to massive financial losses for its subscribers. Son would have been prohibited from working at a financial company for three years if the court had sided with the FSS, which would have prevented him from rising to the current position of the banking giant’s chairman.

Critics like Eun fear that giving such power to the FSS would expose financial institutions to risks of blame for cases in which the investors themselves had a responsibility to be “prudent.”

“Adoption of such rules requires cautious review, as it could affect the legal system surrounding insurers,” a report from Korea Insurance Research Institute said.

Supporters of Lee’s pledge say that victims of fraud or missellings would be exempt from lengthy and grueling legal battles with financial institutions, which often cost customers more than the compensation they end up receiving.

“Insurance subscribers lack financial or legal knowledge compared with insurance companies, which makes it difficult for them to fight with the firms one-on-one,” Lee said.

“Even if they win the case, if the compensation or the insurance money is smaller than the attorney’s fee, they face losses,” he added.

Lee extended his campaign pledges on economic sector Monday that he would prevent minors from being burdened with their parents’ inherited debts by amending civil law, through a Facebook posting. From the beginning of 2016 to March 2021, 80 minors filed for bankruptcy, citing inherited debt from their parents, according to Lee. Lee said that he aims to protect minors who became heavily indebted because of their parents’ failure to protect them.

By Jung Min-kyung (
Korea Herald Youtube