Starbucks Korea faces review of refund rule for prepaid cards as 'Tank Day' fallout continues

The fallout from Starbucks Korea's "Tank Day" controversy has spilled into a regulatory review of the company's 427.6 billion won ($281 million) prepaid card business, as Korea's antitrust authority examines a rule that bars customers from getting cash refunds until they have spent at least 60 percent of their balance.

The Fair Trade Commission (FTC) said Sunday it is checking whether the terms of the card include provisions that unfairly disadvantage consumers. The review includes a clause that requires customers to cancel all registered Starbucks cards when withdrawing from the membership, regardless of any remaining balance.

The FTC is also weighing whether to revise the broader standard terms for prepaid gift cards that the 60 percent threshold is drawn from.

"More than 10 years have passed since the standard terms were established, and there have been calls for revision, so we are looking into whether changes are needed," an FTC official said.

The review follows a wave of customer cancellations and refund requests after the controversy over Starbucks Korea's "Tank Day" tumbler promotion, which critics said evoked the military crackdown during the May 18 Gwangju Democratization Movement of 1980.

Legal challenges have already begun. Yang Hong-seok, an attorney at Yi-Gong Lawyers, said on Facebook on Friday that he had filed a payment order request with the Seoul Central District Court to recover the balance on his prepaid Starbucks card after the company told him that the standard refund conditions had to be met first.

"The rule that requires using more than 60 percent of the balance to qualify for a refund could constitute a provision that unfairly disadvantages customers under Article 6 of the Regulation of Standardized Contracts Act," Yang told the JoongAng Ilbo. "If the court finds it invalid, the conclusion will be that the full balance must be refunded."

Starbucks Korea's prepaid balance stood at 427.6 billion won at the end of last year, up about 32.5 billion won or 8.22 percent, from 395.1 billion won a year earlier, according to the company's audit report. The funds, money customers preload onto Starbucks cards and the company's app, effectively function as customer deposits.

The catch is that despite functioning much like a cash top-up service, Starbucks' cards fall outside the scope of the Electronic Financial Transactions Act.

The law governs prepaid electronic payment instruments that can be used for third-party transactions, but because Starbucks operates all of its stores directly, it is treated as a single business under the law. As a result, unlike electronic financial operators such as KakaoPay or NaverPay, Starbucks is not subject to financial supervision, and its refund rules follow the standard terms set for gift cards.

There are also concerns that easing refund rules too far could create new problems. If the threshold is loosened because of the Starbucks situation, prepaid cards could be used as a tool for cash transfers or for so-called card discounting, an illegal practice in which prepaid balances are converted into untraceable cash at a discount.

"Revising the standard terms is an issue that affects not just Starbucks but many other industries," the FTC official said. "We need a comprehensive review."

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.

BY AHN HYO-SEONG, KIM SEONG-JIN, KIM DA-YOUNG [[email protected]]