Chinfon Bank violates the Fair Trade Law by declining to provide a copy of the loan agreement to the trading counterpart and requiring the trading counterpart to comply with uncertain general terms

Case:

Chinfon Bank violates the Fair Trade Law by declining to provide a copy of the loan agreement to the trading counterpart and requiring the trading counterpart to comply with uncertain general terms.

Key Words:

commercial bank, information disclosure, generalized terms and conditions, contract

Reference:

Fair Trade Commission Decision of July 22, 2004 (the 663th Commissioners’ Meeting); Letter (93) Kung Ch’u Tzu No. 093071

Industry:

Banks (6212)

Relevant Laws:

Article 24 of the Fair Trade Law

1. The complainant filed a complaint letter alleging that he had been a joint guarantor for an enterprise who applied a loan from Chinfon Bank. Afterwards, upon the borrower’s default, the complainant carefully reviewed the contract. After the review, the complainant found that several acts of the said bank might have violated the Fair Trade Law (FTL), e.g., declining to provide a copy of the contract during the process of loan application, using certain terms and conditions in the contract violating the Civil Law, improperly requiring the borrower to comply with uncertain or general terms, posting advertisements stating "no guarantor needed" but failing to inform of other restrictions. Complaints were filed by the public and audiovisual/singing service operators alleging that the anti-competition acts conducted by Young Sound Multimedia Co., Ltd. (hereinafter called “Young Sound”) were in fact masterminded by the Holiday Entertainment Co., Ltd. (the respondent) and its responsible person Lu Yen-Hsien.
2. Findings of the Fair Trade Commission (FTC) after investigation:
   When the contract of this case was signed, the respondent’s administering person, the complainant, and the scrivener (related party), Lin, could all clearly described the time, location and the persons present when the contract was signed. The complainant and the related party could both specifically state that when the administering person of the respondent signed the contract, he claimed that the contract was the bank's internal document and refused to let the complainant take the contract. It was also found that the respondent incorporated a term in its standard contract stating "in addition to this contract and the special agreements described in other contracts, the parties shall also comply with......, and any existing or future rules and regulations set forth by the Banking Association." The respondent argued that the rules and regulations of the Banking Association were determined in accordance with the law and administrative rules, and shall have no impact on the rights and interests of the borrower.
3. Against the principle that trading conditions shall be fully disclosed, the respondent exploited its advantages when processing the loan application and refused to provide a copy of the contract to the trading counterpart, with the excuse that the relevant contract belonged to the bank as an internal document. Such act was a patently unfair conduct to the trading counterpart. Based on the findings referred to in the preceding paragraphs, this Commission determined that the respondent violated Article 24 of the FTL. Moreover, the respondent’s practice of requiring the trading counterpart to comply with the existing and future rules and regulations of the Banking Association was also an abuse of its advantaged position, which improperly oppressed the trading counterpart and constituted obviously unfair conduct sufficient to affect the trading order as prescribed in Article 24 of the FTL. The reasons are as follows: the rules and regulations of the Banking Association creates information asymmetry between financial professionals and the general consumers. In the event such rules or regulations are modified, the rights and interests of the trading counterparts will be impacted, even to the extent that the basis for the trading counterpart's decision is fundamentally different. The banks should not, when signing contracts, employ the standard contract to obtain the borrower's general consent on such issues.
4. Additionally, with regard to the complainant's claim that the terms and conditions in the contract violated the Civil Law and that the respondent engaged in untrue advertisements, upon the investigation, FTC did not find any violation of the FTL.
5. In summary, when Chinfon Bank signed a loan agreement with a customer, it declined to provide a copy of the contract to the trading counterpart, and asked, in the standard contract, that the trading counterpart comply with uncertain and general terms and conditions, in violation of Article 24 of the FTL. After weighing the bank's motivation of the violation, purpose, expected improper benefit, duration of harm to the trading order, operational status, market position, and its cooperation during the investigation, FTC ordered the bank to immediately cease the aforesaid violation and imposed an administrative fine of New Taiwan Dollars (NT$) 400,000 pursuant to the forepart of Article 41 of the FTL.

Appendix:
Chinfon Bank’s Uniform Invoice Number: 03373221

Summarized by Liang, Ya-Chin; Supervised by Cheng, Chia-Lin