Medical Designs, Inc. deducted "processing fees" from refunds for returned goods upon rescission or termination of participant contracts, in violation of the Fair Trade Law
Case:
Medical Designs, Inc. deducted "processing fees" from refunds for returned goods upon rescission or termination of participant contracts, in violation of the Fair Trade Law
Key Words:
multi-level sales, return of goods, rescission of contract, termination of contract
Reference:
Fair Trade Commission Decision of November 1, 2001 (the 521st Commissioners' Meeting); Disposition (90) Kung Ch'u Tzu No. 198
Industry:
Direct Sales (4812)
Relevant Laws:
Summary:
1. On 11 October 2000 and 30 April 2001, Fair Trade Commission (FTC) personnel visited the place of business of Medical Designs, Inc. (the respondent) to conduct business inspections and found that the respondent was failing to handle matters relating to the return of goods upon rescission and termination of participant contracts in accordance with the provisions of the Fair Trade Law. The FTC therefore initiated an ex officio investigation of the company. 2. In the business inspections conducted at the respondent's principal places of business, the FTC found that when the respondent processed refunds for goods returned upon rescission or termination of participant contracts, the respondent would deduct a 3% "processing fee" from the refund amount of those participants that had purchased goods by credit card, in violation of Article 23-1 and 23-2 of the Fair Trade Law. The respondent stated that when giving refunds for goods purchased by a participant with a credit card upon termination or rescission of a participant's contract, the respondent was forced to bear the cost of the credit card processing fee at its own loss, so the respondent deducted that amount from the refund. The respondent also stated, however, that if such actions constituted a violation of the Fair Trade Law, it would rectify the matter promptly. 3. In the 30 April 2001 inspection, FTC personnel again visited the respondent's principal places of business and brought back the record of the business inspection and other relevant materials. These record of the business inspection and other relevant materials clearly indicated that the respondent had failed to rectify, as promised after the previous inspection, its practice of deducting the 3% processing fee from the refund for returned goods upon rescission or termination of contract. When giving a refund to participant Lin Ming-chung upon rescission of his contract, the respondent deducted 3% from the original purchase price of the returned goods rather than refund the full original purchase price in accordance with regulations. The respondent also deducted the 3% processing fee from the full original purchase price of returned goods upon termination of participant Chang Che-yao's contract. 4. The Credit Card Business Committee of the Bankers Association of the Republic of China, in an effort to safeguard consumer interests in credit card transactions and remedy regulatory and contractual shortcomings, adopted a "Credit Card Business Self-Regulation Pact" to bring relevant businesses into conformity. Among the rules contained in the pact's "receiving operations" section is the clause "Merchants engaged by the credit card company may not transfer responsibility for the credit card processing fee to the card holder." From this clause it is evident that the credit card processing fee should be considered an operating cost of the merchant engaged to conduct credit card transactions and may not be transferred to the consumer when purchases or returns of goods are made by the card holder. Based on the inspections of 11 October 2000 and 30 April 2001, the FTC determined that the respondent, in deducting the 3% credit card processing fee from the total original price of returned goods upon the rescission of participant Lin Ming-chung's contract with the respondent, violated the provisions of Article 23-1(2) of the Fair Trade Law. It was also determined that the respondent violated the provisions of Article 23-2(2) in deducting the 3% credit card processing fee from the total original price of returned goods upon the termination of participant Chang Che-yao's contract with the respondent.Appendix:Medical Designs, Inc.'s Uniform Invoice Number: 86012048Summarized by Kuo, An-Chi; Supervised by Lin, Ching-Tarng