Bank SinoPac's incorporation of a clause into its housing loan contracts requiring borrowers to waive their rights to the possession of a duplicated copy of the contract, which had disrupted the trading order and violated Article 24 of the Fair Trade Law
Case:
Bank SinoPac's incorporation of a clause into its housing loan contracts requiring borrowers to waive their rights to the possession of a duplicated copy of the contract, which had disrupted the trading order and violated Article 24 of the Fair Trade Law.
Key Words:
bank, adhesive contract, improper clause, advantageous position
Reference:
Fair Trade Commission Decision of March 15, 2001 (the 488th Commissioners' Meeting); Disposition (90) Kung Ch'u Tzu No. 051
Industry:
Domestic Banking Industry (6212)
Relevant Law:
Article 24 of the Fair Trade Law
Summary:
1. In a complaint filed in November 2000, it was alleged that the housing loan contracts adopted by Bank SinoPac require borrowers to: 1. Pay a breach of contract penalty equal to one monthly loan installment (in this case about NT$40,000) in the event that the loan is repaid in full within two years and 2. Waive certain contractual rights, including the right to possession of a duplicated copy of the loan contract. It was also alleged that the adhesive contract employed by Bank SinoPac includes improper clauses that are unfair to clients and violate Articles 19 and 24 of the Fair Trade Law. 2. After its investigation, the Fair Trade Commission (the Commission) found as follows: (1)"Early Repayment Penalty" (i) The term "Early repayment penalty clause" refers to fees collected by certain financial institutions from borrowers who repay their loans in full prior to the expiration of the contract. Such clauses are generally seen in medium- and long-term loan contracts. Bank SinoPac maintains that some clients are taking advantage of a promotion offering consumers special low interest rates for the first one or two years of their loan contracts. If clients who signed mid or long-term loan contracts were allowed to repay their loans in full prior to the expiration of the low-interest rate period, it would unfavorably affect the bank's capital management. Therefore, it is necessary for the bank to specify in its loan contract penalties for early repayments by borrowers. (ii) After investigation, it is the finding of the Commission that the bank's collection of early repayment penalties was primarily based on its need for mid and long-term financial management and to compensate the expenses incurred in underwriting the loan. Consequently, if the bank, for reasons of capital management, specifies to clients what constitutes a breach of contract and has it clearly stipulated in the contract concerning how such breaches will be handled, such conduct is not in itself a violation of Article 24 of the Fair Trade Law. (2)Demand that borrowers waive the right to possession of duplicated copies of contract (i) Adhesive contract adopted by Bank SinoPac contains a clause stating: "With respect to delivery of this Contract, Party A and the Joint and Several Guarantor hereby certify that they both understand the content of the contract and, for reasons of ...., voluntarily agree to waive their rights to the possession of the Contract, and shall raise no objections on this point." The bank's stated reason for including the preceding clause in its loan contracts is as follows: While all borrowers are free to decide whether to possess a duplicated copy of their loan contract, they are often reluctant to take responsibility for possessing such a copy and, of their own volition, relinquish their right to possess such a copy. The clause is used in the contract to clarify that the client voluntarily relinquished its right to possession of a copy of the contract. (ii) After reviewing the evidence, the Commission ruled that financial loan contracts are an important basis for the exercise of rights and the fulfillment of obligations by the involved parties. As such, both parties should possess an original copy or a duplicated copy certified as "identical to the original." Even if there are some consumers who are reluctant to take responsibility for the possession of a copy of the loan contract, it should be left to the discretion of consumers. In this case, the adhesive contracts utilized by Bank SinoPac eliminate the consumer's right to decide on the issue. In this instance, the bank's motivations and actions were both inappropriate. (3)Alleged violation of Article 19 of the Fair Trade Law Because Article 19 of the Fair Trade Law pertains to unfair competitive practices between enterprises and the parties in this case do not meet the stipulated criteria for an "enterprise," therefore Article 19 of the Fair Trade Law is not applicable in this case. 3. The reasons for disposition by the Commission are as follows: (1) Based upon the results of the investigation, the clause pertaining to the borrower's waiving of rights to the possession of the loan contract contained in the "Real Estate Loan Contract" used by Bank SinoPac had seriously infringes upon the rights of the borrower and clearly constituted an unfair trading practice associated with the bank's misuse of its advantageous position and capable of affecting trading order. It therefore had violated Article 24 of the Fair Trade Law. (2) After weighing such factors as the company's motives, market share, cooperation with the investigation, and degree to which its conduct impacted the trading order, pursuant to Article 41 of the Fair Trade Law, the Commission ordered Bank SinoPac to immediately cease its unlawful conduct and imposed on it an administrative fine of NT$400,000.Appendix: Bank SinoPac's Uniform Invoice Number: 86517384 Summarized by Liang, Ya-Chin; Supervised by Horng, Der-Chang