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:
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.
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