The advertisement “Tai Yu Chien” Credit Card Easy Loan Program of Cathay United Bank allegedly violated the Fair Trade Law

Chinese Taipei

Case:

The advertisement “Tai Yu Chien” Credit Card Easy Loan Program of Cathay United Bank allegedly violated the Fair Trade Law

Key Words:

false advertisement, loan

Reference:

Fair Trade Commission Decision of March 3, 2005 (the 695th Commissioners' Meeting); Disposition Kung Ch’u Tzu No. 094019

Industry:

Domestic Banks (6212)

Relevant Laws:

Article 21 of the Fair Trade Law

Summary:

1. The Fair Trade Commission received a complaint letter from the general public, stating that the application form of “Tai Yu Chien” Credit Card Easy Loan Program sent by Cathay United Bank to its credit cardholders has declared that the interest rate for the aforesaid loan is zero. However, the monthly loan payments of the borrowers include handling charges and the handling charges varied with the loan principals. Therefore, it is deemed that the aforementioned handling charges are disguised form of interests; the announcement of zero interest rates is false.
   
2. The term “interest” charge is defined as remuneration that is collected by the capital owner from the capital user; the percentage of the collected amount to the remaining principal is “interest rate”. In practice, an interest rate is mainly determined by the cost of capital and credit risk, whereas the “handling charge” is derivative cost arising in the course of loan processing and not related to capital cost of loan. Cathay United Bank stated “enjoying a premium of zero interest rate” in the application forms of its “Tai Yu Chien” Credit Card Easy Loan Program, however, the Fair Trade Commission’s investigation found that the rate of handling charges for the aforementioned program is calculated to be approximately 17.8% based on the average amortization of principal and interest, reflecting the cost of capital, operating cost, marketing cost, promotion cost and provisions for bad debts. Each of these costs is collected through the name of “handling charge” at each installment payment. Therefore, the “handling charge” for each installment payment of the aforementioned program in essence is “interest”. On this basis, it is substantiate to conclude that the statement of Cathay United Bank in the application form of the aforementioned program, that is “enjoying a premium of zero interest rate”, was inconsistent with interest rate in actual loan transactions. The content of the advertisement is false and sufficient to mislead borrowers or cause them to make erroneous decision, in violation of the provision of Paragraph 1, Article 21 of the Fair Trade Law, applied mutatis mutandis to Paragraph 3.
   
3. In addition, the investigation found a comparison of the “handling charges” (interest rates) of the aforementioned program with the credit card’s revolving interest payments in the publications sent along with the program’s application form, stated total “expense you can save each month” and “it is really profitable for making loan to pay the credit card’s bill”. However, the basis of calculations for credit card’s revolving interest and “handling charges” of the aforementioned programs is different. Such manner of comparison was substantiate to mislead the general public and violated Paragraph 1, Article 21 of the Fair Trade Law, applied mutatis mutandis to Paragraph 3.
   
4. Taking into consideration the Cathay United Bank’s motive, purpose in committing the unlawful acts, anticipated inappropriate profits, the extent of damages to trading order, duration, scale of operations and also the consideration of the total advertisements that have been spread, therefore, the Bank is ordered to cease the aforementioned illegal act in accordance with the forepart of Article 41 of the Fair Trade Law together with an imposition of an administrative fine of NT$400,000.

Summarized by Chi, Hsuen-Li;
Supervised by Tai, Pei-Yi

Appendix:
Cathay United Bank’s Uniform Invoice Number: 04231910