Fair Trade Commission Guidelines on the charge of penalty fees for Prepayment of Housing Loans by the Financial Enterprises

Passed by the 564th Commissioners' Meeting on August 29,2002
Promulgated by Order (91) Kung Yi Tzu No. 0910008691 on September 4, 2002
Amended by the 688th Commissioners' Meeting on January 13, 2005
Promulgated by Order (94) Kung Fa Tzu No. 0940001278 on February 24, 2005

    1. These Guidelines are adopted by the Fair Trade Commission for the purposes of rectifying financial enterprises that exploit their advantageous position to improperly charge housing loan borrowers penalties for prepaying their loans, maintaining trading order, and promoting fair competition.
    2. The term "Housing Loans" as used in these Guidelines refers to loans applied by a natural person from a financial enterprise to purchase a residence.
    3. A financial enterprise shall not refuse a borrower' s prepayment of a housing loan and shall issue certificate of repayment as soon as possible.
    4. When a financial enterprise provides a housing loan with a "repayment prohibited period" to a borrower on the basis of operational considerations, the method of calculating interest rates and loan conditions must be explained in written materials to the borrower. The loan condition of "anytime repayment" shall also be provided for the borrower' s options. A financial enterprise that provides a better loan interest rate with a "repayment prohibited period" may negotiate with the borrower concerning the prepayment penalty for such loan.
      The term "Better Interest Rate" as used in the preceding paragraph refers to the interest rate of a housing loan with a "repayment prohibited period" which is substantially lower than that of a housing loan with the condition of "anytime repayment" at the same period of time when the contract is constituted.
    5. A financial enterprise shall not charge a borrower a prepayment penalty without the consent of such borrower. Prepayment penalty arrangement in accordance with the preceding paragraph shall be agreed upon individually by the borrower and by employing a special clause in the loan contract expressly stipulating the method of calculating and charging penalty.
    6. The charge for the prepayment penalty shall decrease progressively by taking into consideration the time a borrower makes the repayment and his loan balance.
    7. For those existing housing loans on the promulgation date of these Guidelines, financial enterprises shall make appropriate adjustments pursuant to the relevant provisions of these Guidelines per borrowers' requests. The Fair Trade Commission may investigate an individual case if a financial enterprise fails to make the adjustment within three months after receiving a borrower' s request.
    8. A financial enterprise, which negotiates with a borrower for the prepayment penalty when handling housing loans without conforming to these Guidelines, sufficient to affect trading order, is in violation of Article 24 of the Fair Trade Law.