Super Rich Food Co., Ltd., violated the Article 5(1) of the Supervisory Regulations Governing Multi-Level Sales for deducting 5% in administrative service charges from refunding the purchase price when participans withdraw from the organization and terminate the contract

Chinese Taipei


Case:

Super Rich Food Co., Ltd., violated the Article 5(1) of the Supervisory Regulations Governing Multi-Level Sales for deducting 5% in administrative service charges from refunding the purchase price when participans withdraw from the organization and terminate the contract

Key Word:

multi-level sales, rescission of the contract, return of goods

Reference:

Fair Trade Commission Decision of June 9, 1999 (the 396th Commissioners' Meeting); Disposition (88) Kung Ch'u Tzu No. 054

Industry:

General Goods Wholesaling (5110)

Relevant Law:

Articles 23(2) and 42 of the pre-amended Fair Trade Law and Article 5(1) of the pre-amended Supervisory Regulations Governing Multi-Level Sales

Summary:

  1. The Fair Trade Commission (this Commission) received a complaint in January 1999. After requesting by letter the complainant to appear before this Commission to explain the complaint and dispatching personnel to investigate the principal place of business of Super Rich Food Co., Ltd. ("Super Rich") in March 1999, the findings are summarized as follows:

    (1) Super Rich formally implemented its multi-level sales business in March 1997. At present its main    product is the "Fu Le Membership Card," which was sold for a price ranging from NT$23,800 to NT$34,650 apiece depending on the number, or degree of affinity, of the persons jointly purchasing the memberships. Holders of the Membership Card are entitled not only to discounts on hotel reservation, flight tickets, domestic and foreign vacation packages arranged by Hua Ch'i Travel Agency, but will also receive two "VIP Coupons for Stays at the Kenting Maldive Tourist Resort Hotel," one free two-day, one-night deluxe domestic resort vacation package, and a one-year subscription to the membership publication upon joining.

    (2) Super Rich imposes a 5% administrative service charge when paying refunds for goods returned by members upon withdrawal from membership and rescission of the membership contract. The service charge is to indemnify the company for losses associated with card handling expenses, business tax, and administrative processing expenses. A total of 4,205 Fu Le Membership Cards have been sold since the cards were launched in February 1998, of which 96 were later rescinded. The above service charge was applied to all rescinded cases. For instance, for the return of a three-person card which had been sold at a price of NT$23,800, an NT$1,190 service charge would be deducted from the refund. Super Rich asserted that it was unfamiliar with the law and unaware of this Commission's interpretation ref. Kung Yen Shih No. 030. It felt that since it is common practice in business to deduct service charges for credit card use and so forth, to do so should be considered acceptable.

    (3) As a way of showing its good faith in correcting the practices, Super Rich refunded the administrative service charges it had originally deducted to all its [former] members who had rescinded their participation agreements, and notified this Commission of the circumstances of such refunds by letter on April 12, 1999.

  2. The effective Article 5(1)(ii) of the Supervisory Regulations Governing Multi-Level Sales (SRMS) at the time of Super Rich's act provided that within a period of thirty days after rescission of the agreement takes effect, the multi-level sales enterprise shall accept the application from the participant for returning goods, collect or accept goods returned by participants; it shall furthermore refund to the participant the payments for goods made upon purchase and any other fees paid upon participation, accumulated until the time of rescission.

    Super Rich's action of deducting a 5% administrative service charge from the purchase price for the goods returned by members withdrawing from its sales organization violated Article 5(1) of the pre-amended SRMS promulgated pursuant to Article 23(2) of the Fair Trade Law (FTL) in effect at the time of the action.

    Taking into account that Super Rich did not commit the act with an intent to violate the law, but due to the lack of familiarity with the SRMS and relevant interpretations, and that it promptly refunded the administrative service charges it had deducted to the members who had rescinded their contracts, an administrative fine of NT$50,000 was imposed on Super Rich pursuant to Article 42 of the FTL in effect at the time of the action.

 

Summarized by Lee, Ya-ching

Supervised by Yang, Chia-chun

Appendix:

Super Rich Food Co., Ltd.’s Uniform Invoice Number: 89760003


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