KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

Ⅰ. Backgrounds and Purposes

○ It is difficult to imagine daily life without a car, and it is an important means of improving the quality of life. In the case of new cars, the quality guarantee is good, but in the case of used cars, if there is a dispute over performance after purchase, it is difficult for the buyer to deal with it

○ The “Used Car Performance and Condition Inspection Liability Insurance System” is a system introduced by the Ministry of Land, Infrastructure and Transport under the purview of strengthening the protection of used car buyers. Pursuant to Article 58-4 of the Automobile Management Act and the Enforcement Decree of the same Act, vehicle performance and condition inspectors have been required to subscribe to liability insurance since June 2019

○ The purpose of this study is to evaluate the legislative system, normative adequacy, and legislative effectiveness of the performance guarantee system under the Automobile Management Act and to present the results of legislative evaluation on the direction of legal norms that can supplement the current law

 

Ⅱ. Major Content 

○ In this study, a post-legislative evaluation was conducted with the purpose of evaluating the legislative systematicity, normative adequacy, and legislative effectiveness of the performance guarantee system under the Automobile Management Act and presenting legislative evaluation results regarding the direction of legal norms that can supplement the current law

○ The subject of legislative evaluation is the "Used Car Performance and Condition Inspection Liability Insurance System" (Used Car Performance Guarantee Insurance System), which falls under Article 58-4 of the Automobile Management Act

○ This study conducted legislative evaluation based on data. Collect and analyze various data to objectively evaluate the legislative system, normative adequacy, and legislative effectiveness of the law being evaluated

○ In this study, the data collection and analysis method for analyzing the actual situation included a survey of used car buyers over the past two years (550 people surveyed) and a survey of those who received final repairs or compensation through performance guarantee insurance (review of 50 cases)

• According to the Korea Legislative Research Institute's 2023 used car performance and condition inspection liability insurance survey, the most important factor considered by used car dealers when purchasing a used car is ‘whether the car is in good condition as shown in the performance and condition inspection record’ (about half (48.2%)). It is the highest, followed by ‘appropriate price’ (38.4%), ‘car model name’ (5.6%), and ‘car manufacturer’ (brand) (5.1%)

• The main method of checking the condition of a used car is 'whether the vehicle has abnormalities in the performance/condition inspection record', which is the highest at 41.5%, followed by 'vehicles from dealers on online sites (Encar, KB Cha Cha Cha, K Car, etc.). Explanation' (25.3%), 'Direct observation with the naked eye' (21.3%), and 'Dealer's on-site explanation' (10.4%) were followed in that order. Checking for vehicle abnormalities in the performance/condition inspection record is an essential part of purchasing a used car. It was confirmed that it was an important purchase decision criterion

• Therefore, in order to improve the legislative effectiveness of the system, it is important to create an objective performance and condition inspection record and provide it to purchasers

○ In addition, experts from performance status inspectors (Korea Automobile Engineers Association, Korea Diagnostic and Assurance Association), Korea Automobile Dealers' Association, Korea Insurance Development Institute, and academia were included in the expert survey to collect experts' specific perceptions and opinions on legislative feasibility or effectiveness. Convergence analysis was performed

○ The main matters that need to be investigated in order to evaluate the systematic feasibility of legislation include the need to confirm whether a system such as purpose, significance, scope, target, enforcement tool, and restriction method is in place

○ In terms of the legislative system, the performance guarantee insurance regulations in the Automobile Management Act are located in Chapter 7, “Automobile Management Business, etc.” It consists of Article 58-4 (obligation to subscribe to insurance), Article 59 (3) (obligation to prohibit false performance and condition inspection requests), and penalty provisions for violations. There are no major problems found in the legislative system. As penalty provisions for violations, Articles 80 and 81 stipulate imprisonment for up to 2 years or a fine of up to 20 million won, and imprisonment for up to 1 year or a fine of up to 10 million won, respectively

○ Despite the provisions of Article 58-4, Paragraph 2 of the Automobile Management Act, “A vehicle performance and condition inspector must subscribe to insurance responsible for the warranty pursuant to Paragraph 1,” the actual premium payer is the used car purchaser, so understanding and interpretation of legal regulations is not required. There may be some controversy, so there is a need to clarify this

○ In terms of conformity with higher law, the Constitutional Court derived the general right to freedom of action and the right to self-determination from the right to pursue happiness in Article 10 of the Constitution, understanding the right to pursue happiness as a subjective right, especially the general right to freedom. In the used car performance guarantee system, the performance inspection sheet prepared by the performance inspector provides important information in exercising the purchaser's right to purchase, that is, the right to self-determination, and provides information that can have a significant impact on satisfaction with the purchase and the pursuit of happiness. In order to comply with the purpose of the Constitution, Article 58-3 (4) and Article 58-4 of the Automobile Management Act imposes an obligation to systematically provide and notify accurate information, so the legislative purpose of this Act is to violate the higher law. doesn't seem to exist

○ The following matters were reviewed as an economic evaluation in maintaining the performance guarantee insurance system. ▶ Performance guarantee insurance premiums are increasing every year. ▶ The purpose of the system is a form of liability insurance for the performance inspection results of performance status inspectors, and the subject of insurance subscription is is specified as a performance inspector (Article 58-4 of the Act). However, the warranty insurance premium is paid by the buyer. ▶ The performance inspector's copayment according to the final processing of the performance inspection insurance is 100,000 won. Even if the performance guarantee insurance premium increases, the performance inspector only has to pay the out-of-pocket expenses. ▶ There is a possibility that moral hazard may occur at the performance inspection center in that the performance inspector's responsibility for the performance inspection results is somewhat weak. ▶ The increase in insurance premium according to the loss ratio increases the loss ratio. It is somewhat unreasonable in that the burden is borne by buyers who have not contributed much to the increase. Since only differences between the results of the performance inspection report and the condition of the vehicle after sale are guaranteed, the performance inspector can make a decisive contribution to lowering the loss ratio, but the incentive is weak

○ Used car buyers are receiving significantly more protection than before the introduction of the performance guarantee insurance system (June 1, 2019), but the following review items are presented to improve the system

○ Pursuant to Article 58 (1) of the Automobile Management Act, it is stipulated that the dealer must notify the buyer of the details of the vehicle performance inspection before signing the contract. Therefore, dealers want to provide good results to buyers for the sale of used cars, and accordingly, the performance inspector can be influenced by the dealer. Therefore, it is possible to consider ways to improve the buyer or seller's ability to undergo performance inspection directly so that independent work can be performed without the influence of the trading business

○ Since the used car warranty is a function guarantee and not a quality guarantee, many disputes arise in proving differences between the contents indicated in the Automobile Management Act Enforcement Rules [Form No. 82] regarding function. There may be differences in warranty scope, repair amount, etc. depending on the loss adjustment company that decides on warranty processing 

○ Those who have not paid the insurance premium and change their affiliation to another performance inspection association and report again must attach a certificate of full payment of the performance inspection premium issued by their previous association. There is a need to review the system to prevent those who have not paid the premium from performing performance inspection work

○ Measures to secure audience seats for performance inspections

• Strengthening sanctions that can be imposed when a used car performance inspection center fails to conduct an objective inspection can be reviewed

• Currently, the deductible at the performance inspection center, that is, the amount that the vehicle performance/condition inspector must pay when damage is dealt with by automobile performance/condition inspection liability insurance, is at a low level. Performance guarantee insurance processing repair costs can be considered to suppress moral hazard at performance inspection stations by increasing the self-payment fee to 100,000 won each for domestic and foreign cars for one vehicle for which an automobile performance and condition inspection record has been issued

• When a used car seller sells a car to a used car dealer, he or she may first undergo a performance inspection and review the method of submitting an inspection report to the used car dealer

○ Measures to improve notification of used car buyers as a result of performance inspection 

• In cases where an automobile dealer sells or mediates the sale of a automobile pursuant to Article 58, Paragraph 1, Item 1 of the Automobile Management Act, details of the automobile performance and condition inspection (photos taken of the inspection scene) as prescribed by Ordinance of the Ministry of Land, Infrastructure and Transport must be notified in writing to the buyer of the vehicle before concluding a sales contract (including within 120 days from the date of inspection)

• As a result of the Korea Legislative Research Institute's survey, 21.6% responded that they 'did not receive written notice', showing that review of the effectiveness of legal application is necessary

• At the bottom of the Enforcement Rules of the Automobile Management Act [Form No. 82], the signature is written after the phrase, “I confirm that I have been issued the above automobile performance/condition inspection record ([ ] automobile price survey/calculation selection).” You can review how to add items that buyers need to check in the content

• Methods to improve the effectiveness of the notification obligation, such as having the buyer write the same sentence again by hand and sign after the phrase "I hereby confirm that I have been issued the above automobile performance/condition inspection record ([ ] automobile price survey/ calculation selection)" You can review

Ⅲ. Expected Effects 

○ Legislative evaluation through the Used Car Performance Inspection System under the Automobile Management Act for a practical legislative effectiveness review

○ In this study, a post-legislative evaluation was conducted with the purpose of evaluating the legislative systematicity, normative adequacy, and legislative effectiveness of the performance guarantee system under the Automobile Management Act and presenting legislative evaluation results regarding the direction of legal norms that can supplement the current law

○ Contributing to the improvement of the system by analyzing the problems of the automobile performance inspection and guarantee insurance system, which are important in used car transactions, and suggesting related improvement measures

○ At a time when it is difficult to find a prior study on the performance guarantee insurance system involving direct stakeholders of the Act, this study was conducted based on the results of a survey of used car buyers (550 people) and a survey of 50 cases that was finally repaired or compensated through performance guarantee insurance for the past two years after the system was implemented. By securing more meaningful legislative evaluation data on the impact and evaluation of the system, it can be used as basic data for the legislative development of the system under the Automobile Management Act. When revising the Automobile Management Act in the future, it can be used as a reference for reviewing related issues

○ By providing a legislative evaluation methodology according to the individuality and specific specificity of the used car performance guarantee insurance system under the Automobile Management Act, we contribute to establishing a legislative evaluation methodology for the same law in the future