Violation of Article 24 of the Fair Trade Law by Bank of America NT&SA for failure to specify the interest rate in its loan agreement with its trading counterparts
Chinese Taipei
Case:
Violation of Article 24 of the Fair Trade Law by Bank of America NT&SA for failure to specify the interest rate in its loan agreement with its trading counterparts
Key Words:
obviously unfair, interest rate, guidance to rectify
Reference:
Fair Trade Commission Decision of July 15, 1998 (349th Commission Meeting); Disposition Ref. (87) Kung Ch'u Tzu No. 158
Industry:
Foreign-national Banking Industry (6513)
Relevant Laws:
Article 24 of the Fair Trade Law
Summary:
According to the complaint referred to the Fair Trade Commission (FTC) from the Consumer Protection Foundation, a clerk of the Bank of America NT&SA (respondent) informed the complainant that the interest was actually only 7.5% per annum for the loan provided by the respondent which is subject to a biweekly-installment schedule, but the loan agreement signed on 27 February 1998 did not specify the interest rate. The complainant repeatedly asked the respondent for the principal and interest payment schedule, which the respondent did not provide until the amount of principal was drawn down. However, the interest rate specified shown in the schedule was 8.99% per annum. The complainant questioned the respondent about such rate. The respondent alleged that, because of biweekly installment schedule, the repayment of principal would be ahead of the monthly installment schedule and the amount of interest actually paid would be less. As a result, the effective rate would be 7.5% per annum.
The FTC found that repaying the principal ahead of monthly schedule to reduce the interest is exactly the feature of the subject loan. The respondent advertises to the public by a clear comparison between the interest of repayment by biweekly installments and that by monthly installments. In addition, the respondent's advertisement clearly specifies "the interest is equivalent to about 7.5% per annum of a repayment schedule by monthly installments." According to such advertisement, it is believed that there is no deceptive representation regarding the 7.5% annual interest. However, it puts loan applicants in an obviously disadvantageous position that the banking industry customarily fails to specify the interest rate in the loan agreement or certificate of credit, when the agreement is entered into but fills the rate sometime later. The FTC's 279th and 286 Commission Meetings previously provided the guidance for rectification of such practices and the time limit for rectification expired 31 July 1997. The respondent argued that it scheduled to increase its prime rate in mid-February 1998; and for those who applied for a loan before the said interest adjustment date, the previous lower interest rate would apply if the amount of principal was drawn down before the end of February. Consequently, the interest rate could not be determined until the application procedure was complete with a signed guarantor agreement and the principal was drawn down. This was alleged by the respondent as the reason why the loan agreement did not specify the interest rate. Nonetheless, as the loan applicant could not confirm whether the interest rate as eventually specified in the loan agreement would be the same as the rate mutually agreed-upon, where there is a dispute, the loan applicant would be in a disadvantageous position in carrying out the burden of proof. Although the respondent had its cause not to specify the interest rate, it was a matter of its internal process. It could have specified the applicable interest by alternative formats. Its internal process should not have undermined the rights and interests of the applicant.
In conclusion, the respondent failed to specify the interest rate in the loan agreement with its trading counterpart, thereby placing the trading counterpart in a disadvantageous position in violation of the purpose and content of the above guidance for rectification. The FTC thus found the respondent in violation of FTL Article 24 for its obviously unfair act, which is sufficient to adversely affect the trading order.
Summarized by Lin Hsing-wen
Supervised by Hu Kuang-yu
Bank of America NT&SA’s Uniform Invoice No.: 03306808