A complaint was filed against ABN AMRO Bank’s advertisements of “Top-up Program” and “Ling Yong Chin B Program” for violating the Fair Trade Law

Chinese Taipei

Case:

A complaint was filed against ABN AMRO Bank’s advertisements of “Top-up Program” and “Ling Yong Chin B Program” for violating the Fair Trade Law

Key Words:

False advertisement, loan

Reference:

Fair Trade Commission Decision of August 18, 2005 (the 719th Commissioners' Meeting), Letter Kung Yi Tzu No. 0940007273

Industry:

Foreign Banks (6213)

Relevant Laws:

Article 21 of the Fair Trade Law

Summary:

1. This Commission received a complaint letter from the general public, stating that ABN AMRO Bank had announced in the advertisement of “Top-up Program” that the said Program is “zero interest rate, zero interest”. However, the complainant claimed that there was a handling charge for the said program, which could be a disguised form of interest. Furthermore, the said advertisement did not disclose clearly the basis of comparison among the said program, cash card and credit card and thus the advertisement might have misled consumers. Likewise, the advertisement of the “Ling Yong Chin B Program” alleged “zero percent interest rate cash loans for Platinum cards” and “three-year zero percent interest rate”, but the program still collected handling charges for each installment period. The amount of handling charges varied with the amount of loan principal. Therefore, the allegation of zero interest was deemed as untrue and has violated the provision of the Fair Trade Law.
2. The term “interest” is defined as the money collected by the capital owner from the capital user; the percentage of the collected amount to the balance principal is “interest rate”. In practice, an interest rate is mainly determined by the cost of capital and credit risk, whereas the “handling charge” is the derivative cost incurred in the course of loan processing and unrelated to capital cost of loan. ABN AMRO Bank stated zero interest rates in the advertisements of “Top-up Program” and “Ling Yong Chin B Program”, and thus will cause the trading counterparts into believing that they do not have to pay any interest on the bank loan within the agreed period. Although ABN AMRO Bank argued that the Bank has emphasized to consumers that the Bank neither will collect again interest for revolving credit nor other interests because the Bank has already collected handling charges, but this Commission’s investigation found that the annual rates of handling charges for the aforementioned two programs were approximately 14.92% and 18.22% for a loan that is paid back in 36 payment installments. In addition to the preparation costs and account maintenance costs, the compositions of handling charges also include costs of capital and allowances for bad debts. ABN AMRO Bank also admitted that the handling charges indeed were collected to cover the aforementioned costs. Also, the risks of bad debts occurrences and uncertainty increased with the duration of loan; therefore the amount of handling charges collected was determined by the duration of loan. Therefore, it is evident that the “handling charges” of the aforementioned programs in essence are “interests” and furthermore, they neither have any relations to the setup fees collected upon loan approval nor whether the monthly installment payment may utilize interest of revolving credit. ABN AMRO Bank indicated “zero interest rates” in the advertisements of the aforementioned two programs but rather the interests were collected in the name of handling charges, and thus inconsistent with the advertised zero interest rate. The content of the advertisements would mislead borrowers or cause them to make erroneous decisions. ABN AMRO Bank made false or misleading representations in the advertisements and violated the provision of Paragraph 1, Article 21 of the Fair Trade Law, applied mutatis mutandis to Paragraph 3.
3. In addition, the investigation found that ABN AMRO Bank compared the handling charges for the “Top-up Program” during the first year with the interest rates for cash cards and credit cards in the advertisement of the “Top-up Program”. In the advertisement of the “Ling Yong Chin B Program”, ABN AMRO Bank compared the zero interest rate and handling charges for different installment periods of the Program with the 20 percent revolving interest rate for credit cards. However, the handling charges for the aforementioned two programs and the revolving interests for credit cards or cash cards were calculated on different basis. Furthermore, the cardholder may repay at anytime all or part of the previously deferred payment of revolving interests for credit cards or cash cards that were calculated on the basis of the unpaid balance or loan balance. Unlike this repayment manner, the repayments of the aforementioned two programs are restricted by the number of loan installments. In addition, the terms of transactions for the aforementioned two programs were also different from that of credit card and cash card. Hence, a comparison of the aforementioned two programs with credit card and cash card would misled the general public and thus violated the provision of Paragraph 1, Article 21 of the Fair Trade Law, applied mutatis mutandis to Paragraph 3.
4. Taking into consideration the motivation, purpose, and expected improper benefit of the unlawful act of ABN AMRO Bank; the degree of the act’s harm to market order; the duration of the act’s harm to market order; benefits derived on account of the unlawful act; the scale, operating condition, sales and market position of the enterprise; whether or not the type of unlawful act involved in the violation has been the subject of correction or warning by the Central Competent Authority; types of, number of, and intervening time between past violations, and the punishment for such violations; remorse shown for the act and attitude of cooperation in the investigation; and other factors, the ABM AMRO Bank is ordered to cease the unlawful act and an administrative fine of NT$ 400,000 was imposed according to the anterior paragraph of the provision of Article 41 of the Fair Trade Law.

Summarized by Tseng, Chiu-Chen;
Supervised by Tai, Pei-Vi

Appendix:

ABN-AMRO Bank’s Uniform Invoice Number:84254484