Heng Wei Long Co., Ltd. violated the Fair Trade Law

Chinese Taipei



Case:

Heng Wei Long Co., Ltd. violated the Fair Trade Law

Key Words:

funeral grant, service fees, credit card transaction fees, statutory deductions, welfare committee

Reference:

Fair Trade Commission Decision of March 7, 2003 (the 591st Commissioners' Meeting); Letter Kung Ch'u Tzu No. 092039

Industry:

Other Organizations Not Elsewhere Classified (9499)

Relevant Law:

Articles 23-1(2), 23-2(2), and 23-4 of the Fair Trade Law

Summary:

1. The present case originated from a citizen complaint about the Heng Wei Long Welfare Committee (the Welfare Committee) established by Heng Wei Long Co., Ltd. (Heng Wei Long). Whoever intended to join the Welfare Committee had to pay a membership fee of NT$1,000 and make purchases totaling NT$13,750 before they became members and were granted various rights as participants. If a member paid NT$200 as mutual aid fee upon death of another member, and NT$1,000 as an annual fee, then if their death occurred 365 after days after participation, their beneficiary would be entitled to a funeral grant of NT$500,000. Since October 2002, some members died and their beneficiaries did not receive their full funeral grants. In addition, when participants applied for return of goods seven days after the began participation, the respondent would deduct service fees (10% of the refund), the already issued bonuses (organizational bonuses, recommendation awards, welfare funds, and leadership bonuses), and credit card transaction fees (3% of the refund). The respondent thus allegedly violated the Fair Trade Law.

2. Upon investigation, it was discovered that Heng Wei Long engaged in multi-level sales activities beginning in July 2000. When participants of the multi-level sales plan rescinded and terminated their contracts and returned their goods, the respondent deducted credit card transaction fees, service fees (10%), the bonuses already issued to “upper lines,” and welfare funds from the refunds payable to the participants, and made this practice known to participants by announcements on 20 September 2001 and 2 May 2002.
To better protect the rights and interests of consumers and to supplement the unregulated areas of laws, regulations, and contractual clauses, the Credit Card Affairs Committee under the Banker's Associations of the ROC prescribed the “Credit Card Services Self-discipline Agreement” to regulate relevant service providers. According to the section entitled “card processing operations,” “participating merchants shall not shift credit card transaction fees to cardholders,” which means that credit card transaction fees are normal operating costs for merchants accepting payment by credit card. When cardholders make purchases or return goods, merchants are not supposed to shift such fees to the cardholders. In addition, statutory deductions under Article 23-1(3) and Article 23-2(2) of the Fair Trade Law do not include an enterprise's operating costs such as “credit card transaction fees.” Heng Wei Long therefore was not allowed to arbitrarily add fee categories such as “credit card transaction fees” and “service fees.” When processing rescinded contracts and returning the purchase prices of goods, or processing terminated contracts and buying back goods, a multi-level sales enterprise will be allowed to deduct any bonuses or awards already issued to the participant for the purchase. However, according to Article 29 of the Enforcement Rules of the same Law, the term “participant” means only the person rescinding or terminating the contract, and excludes any other participant. To sum up, it was obvious that Heng Wei Long violated Articles 23-1(2), and 23-2(2) of the Fair Trade Law.

3. According to the “Distributors' System Award Plan” and “Heng Wei Long Co., Ltd. Welfare Committee Regulations” produced by Heng Wei Long, participants automatically qualified as members of the Welfare Committee, and the overhead for the Welfare Committee came from Heng Wei Long's sales revenue. In addition, Heng Wei Long said that participants joining the sales organization after 10 September 2001 did not have the option of not joining the Welfare Committee. That was to say, all participants had to take part in the Welfare Committee's operations, and parts of their participation fees and first purchase payments were earmarked for Welfare Committee overhead. It could thus be determined that Heng Wei Long financed the Welfare Committee's operations.
The Welfare Committee began promoting its funeral grant system in 10 September 2001, whereby the beneficiaries of participants passing away after a certain period of participation were entitled to a funeral grant of NT$500,000. The funds for the funeral grants came from the monies earmarked from participants' membership fees paid upon joining Heng Wei Long's multi-level sales organization and their first purchase payments, as well as from the payments of NT$1,000 by participants as annual contract renewal fees and of NT$400 as mutual aid funds upon death of other participants. Heng Wei Long admitted that the scope of operations it reported to the Fair Trade Commission (FTC) did not include matters such as the bonus and funeral grant systems that had been in operation respectively since 10 September 2001 and 10 April 2002, and that part of the membership fees and purchase payments were being earmarked for Welfare Committee's overhead. The bonus system in operation since 1 September 2002 did not specify that the design of the funeral grant system was different than its actual implementation. Therefore, the funeral grants provided upon the death of participants by Heng Wei Long in the name of the Welfare Committee were deemed to be “other economic benefits” of participants under Article 5(1) of the Supervisory Regulations Governing Multi-Level Sales, and, pursuant to Article 7(1) of the same regulation, had to be reported to the FTC prior to implementation. Heng Wei Long admitted that the funeral grant system was not recorded in any of the changes to the reported scope of operations. Its actions thus constituted a violation of Article 7(1) of the Supervisory Regulations Governing Multi-level Sales enacted pursuant to Article 23-4 of the Fair Trade Law.

4. To sum up, Heng Wei Long violated Articles 23-1(2), 23-2(2) of the Fair Trade Law, and Article 7(1) of the Supervisory Regulations Governing Multi-level Sales enacted pursuant to Article 23-4 of the Fair Trade Law. Weighing the damage its violation caused to the trading order, the duration of the violation, its business conditions, and the nature and pattern of violations, the FTC imposed on the company an administrative fine of NT$600,000 — NT$400,000 pursuant to the forepart of Article 41, and Articles 42(2) and 42(3) of the Fair Trade Law, and NT$200,000 pursuant to the provisions of Supervisory Regulations Governing Multi-level Sales—and ordered it to cease the violation.

Appendix:
Heng Wei Long Co., Ltd.'s Uniform Invoice Number: 70471030

Summarized by Wang, Horng-Shiuan; Supervised by Lin, Ching-Tarng