Jih Sun International Bank was complained for failing to disclose the interest rate while signing a loan agreement in violation of the Fair Trade Law
Case:
Jih Sun International Bank was complained for failing to disclose the interest rate while signing a loan agreement in violation of the Fair Trade Law
Key Words:
interest rate, loan application
Reference:
Fair Trade Commission Decision of October 23, 2003 (the 624th Commissioners’ Meeting); Disposition (92) Kung Chu Tzu No. 092176
Industry:
Domestic Banks (6212)
Relevant Law:
Article 24 of the Fair Trade Law
Summary:
1. This case is based on a letter of complaint received from a member of the public, stating that the complainant applied for a car loan with Jih Sun International Bank (Jih Sun Bank) in October of 2002, and while signing the loan agreement, the respondent only recorded the monthly payments on the loan application form, and told the applicant that the interest rate on the loan would be 9.8%. This interest rate, however, was not filled in on the loan agreement and the complainant was required to sign and affix his chop on the agreement. Afterwards, Jih Sun Bank calculated the interest rate at 11%, which differs from the 9.8% originally quoted. Furthermore, the bank refused to provide a photocopy of the agreement to the complainant, thus putting the complainant (borrower) at an obvious disadvantage. The complainant alleged Jih Sun Bank’s actions to be in violation of the provisions of the Fair Trade Law.
2. In normal practice, when signing a loan agreement or receipt for a loan with a borrower, if a financial institution does not clearly indicate the interest rate at the outset and fills in said interest rate after the loan agreement is signed, this puts the borrower at an obvious disadvantage. For this reason, the Fair Trade Commission (FTC) made resolution for an industry rectification at their 286th Commissioners’ meeting on 23 April 1997. In addition, at the 571st Commissioners’ meeting on 17 October 2002, the relevant corrective principles were compiled in the “An Explanatory Note on Regulation of Financial Enterprises Under the Fair Trade Law,” which expressly states that when signing loan agreements or receipts with a borrower, financial institutions must clearly indicate the interest rate in writing. Furthermore, in principle, two original copies of the loan agreement or receipt should be signed, with one to be retained by each party. Financial institutions may, however, due to operational considerations, provide the borrower with a photocopy including the note “same as original”. Where a financial institution refuses to either disclose the interest rate for the loan or provide a copy of the agreement, and where this action is sufficient to affect the trading order, there is a likelihood of violation of Article 24 of the Fair Trade Law.
3. Neither party in this case disputes the fact that when entering into this written loan agreement, Jih Sun Bank failed to clearly indicate the interest rate. Jih Sun Bank maintains, however, that it informed the complainant of the amount of the loan, the loan period, the interest rate, the average monthly amortization payments, and the payment method before the agreement was signed, and did not fill in the interest rate on the agreement because the complainant was extremely busy with work, was in a hurry to take possession of the car, and therefore requested that the loan be approved and money be delivered that day. Disclosing the interest rate, however, is an important condition for this kind of transaction. Jih Sun Bank claimed that they had informed the complainant of the interest rate and also indicated the monthly payments of the loan application. Then, the fact that the interest rate was not filled in on the agreement seems somewhat illogical. Furthermore, the bank’s failure to fill in the interest rate on the agreement and the complainant’s rush to take possession of the car are two completely separate issues. Thus, Jih Sun Bank’s claims are obviously an attempt to evade its responsibility. In addition although Jih Sun Bank recorded the monthly payments on the disputed loan application, the monthly principle and interest due on a loan are based on the amount of the loan and the interest rate, and furthermore, these figures must be calculated by computer or by a formula and relevant tables, otherwise it is difficult to work out the standard interest rate from the principle and interest to be paid monthly. Consequently, when comparing whether or not a loan is favorable relative to the borrowing and lending services provided by other financial institutions, all financial institutions base their advertisements and promotions on their interest rate. Consumers also use this as a standard to decide which institution they wish to deal with. Therefore, not only is the fact Jih Sun Bank recorded the monthly payments on the disputed loan application no substitute for a true and accurate disclosure of the interest rate, it also fails to satisfy the requirement in the “Standard Contracts for Personal Car and Housing Loans” published by the Ministry of Finance which clearly prescribes that the interest rate must be listed in these types of agreements. Additionally, Jih Sun Bank has already admitted that the interest rate written in the final contract signed with the financial institution would be taken as the final one, but if Jih Sun Bank failed to disclose the interest rate on the agreement, or only noted the monthly payments on the loan application, then the borrower has no way of knowing what the final interest rate is. This not only puts the borrower at a disadvantage and creates a distinct possibility that the borrower will make a mistake at the time of signing the contract, but also adversely affects the trading order and fair competition. Thus it is clear that Jih Sun Bank has taken advantage of its trading counterpart's disadvantaged position due to his lack of information. This is an obviously unfair act sufficient to affect the trading order.
4. With regard to the complainant’s claim that Jih Sun Bank failed to provide him with the agreement, it was found that the complainant did, in fact, request a copy of the agreement at the time the agreement was signed and the Bank did not refuse. The FTC sent a letter to the complainant requesting concrete evidence that Jih Sun Bank refused his request for the agreement. No evidence, however, was provided. Therefore, there is no concrete evidence to indicate that Jih Sun Bank had refused to provide the agreement to the complainant.
5. Jih Sun Bank’s failure, in this case, to disclose the interest rate on the loan agreement at the time of signing the agreement is an obviously unfair act sufficient to affect the trading order, and thus violates the provisions of Article 24 of the Fair Trade Law. Considering, however, that Jih Sun Bank did disclose the monthly payment of principle and interest paid by the borrower on the loan application, that they cooperated fully with this investigation, and that they immediately decreased the interest rate upon hearing of the borrowers complaint, the FTC, based on the provisions of the forepart of Article 41 of the Fair Trade Law, ordered Jih Sun Bank to immediately cease the unlawful acts described above and imposed an administrative fine of NT$50,000.
Appendix:
Jih Sun International Bank’s Uniform Invoice Number: 86521704
Summarized by Tseng, Chiu-Chen; Supervised by Horng, Der-Chang