MassMutual Mercuries Life

Case:

Key Words:

real estate, housing loan, prepayment, penalty, principle of decreasing

Reference:

Fair Trade Commission Decision of September 2, 2009 (the 930th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 098122

Industry:

Personal Insurance (6510)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

1. This case originated from the housing loan contract entered into by MassMutual Mercuries Life and Mr. Lin (hereinafter referred to as the Complainant). Both parties agreed on a fixed interest rate at 2.95% in their housing loan contract. The Complainant, after paying the interest for several years, found the loan interest too high and filed a complaint with MassMutual Mercuries Life. At the mean time the Complainant decided to prepay the housing loan and refinance with another bank. MassMutual Mercuries Life then collected prepayment penalty from the Complainant who alleged that the way MassMutual Mercuries Life collected the penalty was in violation of the Fair Trade Law.

2. Findings of the FTC after investigation: It was discovered that the Complainant signed a "Supplemental Agreement to Loan Agreement" on April 12, 2006 with MassMutual Mercuries Life for two housing loans of NT$2,400,000 each. Article 2 of such Supplemental Agreement provided that "the fixed interest rate for the period from April 12, 2006 to April 12, 2011 should be 2.95% … ‘fixed interest term.' Whereas the borrower intends to obtain the abovementioned prime interest rate and to compensate the lender for any loss arising from the borrower's prepayment after providing such prime interest rate, the borrower hereby agrees to pay the lender a prepayment penalty equal to 1% of NT$1,085,000 whenever the prepayment amount reduces the principal down to NT$1,085,000 or lower." It was also found that from May 2005 to March 2007 MassMutual Mercuries Life used the "Supplemental Agreement to Loan Agreement" in question in 138 cases, in which prepayment penalties were collected in 21 cases pursuant to the above-referenced article.

3. In order to make sure that the banking enterprises do not to exploit their advantageous status and improperly collect prepayment penalties from housing loan borrowers and to maintain the trading order and improve fair competition, the FTC has promulgated the "Fair Trade Commission Guidelines on the Charge of Penalty fees for Prepayment of Housing Loans by the Financial Enterprises" (hereinafter referred to as the Guidelines on the Charge of Penalty fees for Prepayment of Housing Loans), and Item 6 of which provides that "the charge for the prepayment penalty shall decrease progressively by taking into consideration the time a borrower makes the repayment and his loan balance." It was found that the actual penalty calculation used by MassMutual Mercuries Life was merely to deduct the repayment limit from the loan balance. In other words, if the principal is paid down to NT$1,085,000 or lower within the "fixed interest term," the single prepayment penalty is always NT$10,850. Thus, no matter when a borrower repays to the limit mentioned above within the "fixed interest term," the amount of the prepayment penalty is always the same. The actual penalty calculation failed to decrease progressively by taking into consideration the time a borrower makes the repayment and his loan balance. There were 21 cases in which the penalties were collected pursuant to this article in question. Based on these facts, it was sufficient to say that the penalty calculation was inconsistent with Item 6 of the Guidelines on the Charge of Penalty fees for Prepayment of Housing Loans. Therefore MassMutual Mercuries Life was found engaged in an obviously unfair conduct sufficient to affect the trading order and violated Article 24 of the Fair Trade Law. The FTC imposed an administrative fine of NT$200,000 in accordance with the forepart of Article 41 of the Fair Trade Law.

Appendix:
MassMutual Mercuries Life's Uniform Invoice Number: 84443471
Summarized by Yung, Hsiang-Yu; Supervised by Chen,Yuhn-Shan