Interpretation of whether the Central Bank, who enforces the "dishonoring notes and blacklisting" system by administrative guidance, violated the Fair Trade Law
Case:
Interpretation of whether the Central Bank, who enforces the "dishonoring notes and blacklisting" system by administrative guidance, violated the Fair Trade Law
Key Words:
returned checks, blacklisting, administrative guidance
Reference:
Fair Trade Commission Decision of November 23, 2000 (the 472nd Commissioners' Meeting); Letter (89) Kung Yi Tzu No. 8913191-003
Industry:
The Central Bank of China (6511)
Relevant Laws:
Article 7 of the Fair Trade Law
Summary:
1. The present system for dishonoring notes and blacklisting customers who issue notes with insufficient fund has been in effect for several decades. The Central Bank and the Ministry of Finance established the system through administrative regulations including the "Central Bank Supervisory Regulations Governing the Exchange of Negotiable Instruments" and the "Processing Regulations for Checking Accounts". As these measures involve restrictions on people's fundamental rights, the Central Bank, in order to conform with the Administrative Procedure Law, invited the Ministry of Finance, the Bankers Association, and the Taipei Negotiable Instruments Exchange to draft an "Agreement for Matters Concerning Dishonored Notes and Blacklisting" and a "Standard Contract for Matters Concerning Returned Dishonored Notes and Blacklisting". Once these documents were finalized the Central Bank enforces them by administrative guidance. The Central Bank, for the concern on whether these measures violated the Fair Trade Law (FTL), submitted a request for interpretation to the Fair Trade Commission (the Commission). 2. The Commission found that the adoption of a uniform system for "dishonoring notes and blacklisting" is intended to establish a source of clear, easily-queried information at the Negotiable Instruments Exchange regarding creditworthiness for check depositors. The system helps members of the financial services community and ordinary consumers (account holders and bearers of notes) to take necessary measures against check writers with inferior credit based on announcement by the Exchange. The system serves to maintain the trading order and to protect consumer interests. In addition, Chinese Taipei urgently needs to stimulate traditional industry and to increase competitiveness. Under these circumstances, suddenly making radical changes to a system that has been in place for several decades will have a severe impact on the overall economy, and would be detrimental to economic stability and general prosperity. The standardized contracts for "dishonoring notes and blacklisting" define bad credit as the writing of check without sufficient funds to cover it. These contracts also provide that banks should, by closing their accounts, blacklist those who accumulate three unpaid checks in one year. The standard contracts further provide that banks may refuse to do business with bad check writers even after blacklisting period has expired, unless the writers pay off all three bad checks in full, and have the repayments registered. These terms base themselves on the principle of mutual reciprocity and the standard of good faith. Nothing in these terms conflicts with the Consumer Protection Law. As defined in Article 7 of the FTL and Article 5 of the Implementing Rules to the Fair Trade Law, an enterprise violates the FTL's prohibition against concerted action only if that enterprise agrees with another competing enterprise to engage in concerted acts capable of having an impact on the market functions of production, trade in goods, or supply and demand of services. The Commission considers that some subjects of the case, the Central Bank and Bureau of Finance of the Ministry of Finance, are executive agencies rather than enterprises as defined by the FTL. However, the Bankers Association, who is composed of competing individual banks, meets the standard for concerted actions with respect to the practices in question. The system blacklisting check writers, who have written three bad checks in one year due to insufficient funds, for three years also constitutes a concerted act with respect to a trading counterpart. Nonetheless, the Commission has considered the fact that banks that offer checking account services compete through their institutional reputations, geographical proximity, facilities, and service quality. The Commission also noted that statistics of the Central Bank since 1991 show that dishonored notes due to insufficient funds accounted for 0.39 to 0.67 percent of the total number and for 0.22 to 0.57 percent of the value of transactions. Consequently, the system of "dishonoring notes and blacklisting" does not restrict competition, constitute unfair competition, or affect market supply and demand for checking services. In the absence of these conditions, the system cannot be regarded as a concerted act under the FTL. Therefore, prohibitive provisions on concerted action of the FTL do not apply. Summarized by Huei-Yun Lin; Supervised by Der-Chang Horng