Far Eastern International Bank

Case:

Key Words:

prepayment, payment period, loan balance, principle of decreasing payments

Reference:

Fair Trade Commission Decision of March 4, 2009 (the 904th Commissioners' Meeting), Disposition Kung Ch’u Tzu No. 098042

Industry:

Banks (6412)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

1. The informant filed for a mortgage loan of NT$ 8,800,000 to Far Eastern International Bank (hereinafter referred to as FEIB) in March 2002. The informant then applied for a NT$ 4,500,000 “revolving fund” in August 2006. He paid interests regularly. In August 2008, FEIB informed him the agreement would not be renewed. The informant than proposed to transfer loans to another bank. However, FEIB charged him penalty of NT$ 49,500. The informant claimed that he handed his personal seal to a FEIB representative to sign the contract and he knew nothing about the penalty and found it unreasonable. The informant thus reported the case to FTC.
2. Investigation and Results:
   1. The informant signed a mortgage agreement of NT$8.8 million with FEIB in March 2002. At first, the informant applied for the NT$8.8 million-loan at another bank to “purchase a house” in 1998; the loan was then transferred to FEIB in 2002. As the payment period for loan expired, the parties signed another agreement in December 2007. Furthermore, the informant signed a contract with FEIB for a NT$ 5,500,000 “revolving fund” in August 2006. The above fund was not meant to build or purchase a house.
   2. The NT$ 8.8 million mortgage agreement was signed by the informant and FEIB in March 2002, before FTC announced the Principle for Prepayment Penalties in September 2002, and the informant did not request FEIB to adjust the agreement. The disputed penalty in the mortgage agreement lapsed in March 2005 as the payment period expired. Therefore, the informant signed another agreement with FEIB (6412) in December 2007, which specified “I (the informant) agree not to repay in full or acquire the consent letter for mortgage cancellation (of the proof for loan repayment) within 24 months after the interest rate changes. In case of any violations without FEIB’s consent, I agree to pay 100% of penalty of the original credit line, after discussing with the FEIB.” The above article regarding prepayment penalty failed to consider the borrower’s payment period and loan balance, and also failed to comply with the principle of decreasing payment.
3. Grounds for Disposition
   1. The original agreement signed by the informant and FEIB lapsed in March 2005 as the payment period expired. Thus, the parties signed another agreement in December 2007. In that agreement, the parties agreed to a penalty for mortgage prepayment. Since FTC issued the Principle for Prepayment Penalties in Mortgage in September 2002, the prepayment penalty under the agreement made in December 2007 shall be regulated by the Fair Trade Law.
   2. In addition, if financial institutes and borrowers agree to a penalty for mortgage prepayment that is in violation of the principle of decreasing payments, the borrower will be bound by the agreement and become legally disadvantageous. Penalty for mortgage prepayment violated the above regulation and the additional agreement signed by FEIB and the borrower on December 2007 also violated the principle of decreasing payment. FEIB expropriated its dominant status and engaged in obvious unfair conducts which may affect market trading order. It violated Article 24 of the Fair Trade Law and a fine of NT$ 300,000 is imposed.

Appendix:
Far Eastern International Bank’s Uniform Invoice Number: 86517096
Summarized by Lai, Mei-Hua; Supervised by Chen, Yuhn-Shan