Pan German Motors Ltd. was complained for its false advertising about the car installments at the 0% interest rate in violation of Article 21 of the Fair Trade Law
Chinese Taipei
Case:
Pan German Motors Ltd. was complained for its false advertising about the car installments at the 0% interest rate in violation of Article 21 of the Fair Trade Law
Key Words:
false or misleading expressions or symbols, purchase in installments, interest rate
Reference:
Fair Trade Commission Decision of January 8, 1997 (the 271st Commission Meeting); Disposition (86)Kung-Chu-Tsu-012
Industry:
International Trading Industry (4040)
Relevant Law:
Article 21 of the Fair Trade Law
Summary:
1. The defendant, Pan German Motors Ltd. ("Pan German Ltd."), published advertisements in newspapers in July 1996 stating that the company was offering a "Special Program for Purchasing BMW 318isA at 0% interest rate”, "Suggested Price: NT$1,310,000," and "The Interest Rate: 0%." However, the cash price of each car of the said model was NT$1,250,000, while the total installment price the company advertised was NT$1,310,000. Pan German Ltd. indicated that it was an importer of BMW cars manufactured in German and that although it set no uniform prices for cars sold by its distributors, it always provided its distributors with "suggested prices" for the distributors to set their own sale prices. The suggested price for the 1996 BMW 318isA at issue during the promotional period in May 1996 was NT$1,310,000. Subsequently, on July 10 of the same year, the company offered the Special Program for purchasing the car at issue in installments at 0% interest rate with the original suggested price to stimulate purchases. Under the Program, a purchaser could make a down payment of NT$410,000, and the balance would be paid in 36 installments of NT$25,000 each; no additional interest was required. According to Pan German Ltd.'s statement, it offered the said cash price of NT$1,250,000 because some customers who ordered cars at issue did not wish to pay by check either because those customers had no checks or could not issue all the required checks for all the installments at the time of order, or did not want to purchase the car in installments due to their difficulty in finding sureties or would rather make the payment in cash in one lump sum. Under such circumstances, even if Pan German Ltd. did not offer corresponding preferential measures, those customers would request cash discounts. Therefore, taking the reasonable interest burden into account, the company suggested that the car be sold at a preferential price of NT$1,250,000. The company alleged that that special preferential treatment it offered to special customers did not involve any false offers or intent to defraud consumers. Moreover, the company's cost was not reduced after the implementation of the Special Program, as compared with that adopted before the implementation. The defendant alleged that when implementing the Special Program, it had not raised the sale price from NT$1,250,000 to NT$1,310,000 during the implementation period of the Special Program and then solicited purchasers by means of the 0 % interest rate.
2. The installment sale under the Accounting Standard means a transaction agreement under which a customer should pay a part of the purchase price as the down payment and pay the balance in installments within an agreed time limit. Moreover, Interpretation No. 1 of the Financial and Accounting Standards which was published on January 6, 1983, specifies in the method of "entering earnings received from installment sales" that if the installment price is higher than the spot price and includes the delay interest, the interest shall, at the time of sale, be initially listed as unrealized interest income and shall, subsequently in each installment period, be entered as interest income in accordance with the Interest Rules. That is, in accordance with the prevailing Financial and Accounting Standard, if in an installment sale, the installment price is higher than the spot price, the difference between the two prices shall be deemed to be interest income. Moreover, in accordance with Article 2(10) of the Consumer Protection Law, installment payment is a type of transaction under a purchase agreement whereby the consumer shall make a down payment and pay the balance in installments and whereby the relevant enterprise operator shall, at the time of his receipt of the down payment, deliver the purchased object to the consumer. Article 21 of the Consumer Protection Law stipulates that an installment sale contract shall specify the difference between the total sum of the down payment, all the installments, and other additional expenses and the cash price, as well as the interest rate. The term “0 % interest rate” shall mean no interest burden on the purchaser (i.e., the cost of time shall be borne by the seller), equal amounts of all the installments (since the interest rate is 0), and equality between the "total installment price" (the sum of the down payment and all the installments) and the "cash price." (Refer to Article 21 of the Consumer Protection Law and Article 22 of the Enforcement Rules of the Consumer Protection Law.)
3. The advertisement at issue appealed to consumers with such statements as "Special Program for Purchasing BMW 318isA at an 0% interest rate" "Suggested Price: NT$1,310,000," and "The Interest Rate: 0%." After receiving the message given by the advertisement, a consumer might think that he could buy the car at issue in installments at a price not higher than the cash price. However, the "suggested price" Pan German Ltd. offered to a customer who paid in cash was NT$1,250,000 (the net installment price is NT$1,310,000; the net cash price, NT$1,250,000) which was NT$60,000 cheaper than the installment price stated in the advertisement. Whether we look to the Consumer Protection Law or from the financial and accounting point of view, the NT$60,000 should not be considered as sales income; rather, it should be considered as interest income. Therefore, since the defendant would receive an interest amount of NT$60,000 from a sale involving 36 installments, the transaction price did not correspond with the meaning of “0% interest rate” stated in the advertisement, which constitutes a false and misleading conduct. The defendant argued that each installment was NT$25,000; a consumer did not have to pay any additional interest; there was no change of the total sales price of NT$1,310,000 after the implementation of the Special Program, as compared with that adopted before the implementation; therefore, the "0% interest rate" stated in the advertisement at issue was not false expression . However, a comparison between the total cash price and the total installment price shall be made based on the implementation period of the Special Program. Since there was a difference of NT$60,000 between the two prices, the advertisement therefore contained a false message.
Summarized by Chang, H. T.
Supervised by Pai, Y. C.
Appendix:
Pan German Motors Ltd.’s Uniform Invoice No.: 20561562
＄: For information of translation, click here
[Browse by APEC Member
Economies] [Browse by Subject Categories] [Home]
[Decisions] [Approvals] [Interpretations] [Administrative Guidance]