Fair Trade Commission Policy Statements on the Business Practices of Financial Industry	Guidelines

Passed by the 571st Commissioners' Meeting on 17 October 2002
Promulgated by Order Kung Yi Tzu No. 0910010855 on 6 November 2002
Amended by the 676th Commissioners Meeting on 21 October 2004
Promulgated by Order Kung Yi Tzu No. 0930008114
Amended by the 841st Commissioners' Meeting on 20 December 2007
Promulgated by Order Kung Yi Tzu No. 0960011046

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1. Background

Financial enterprises are institutions that deal as intermediaries in funds. Their trading counterparts include companies and other kinds of businesses and the general consumer public. Through their lending businesses, they have a critical impact on the availability of credit to, acquirement of funds by, and market competitiveness of enterprises, and the overall industrial and economic development. If financial enterprises all hold fast to the principles of information transparency, fairness, and reasonableness in all their operations and transactions, disputes over transactions would be a rarity, and the overall development of financial markets would benefit. Conversely, if financial enterprises exploit their superior position or take advantage of the trait of information asymmetry to cause trading counterparts to make erroneous decisions or compel trading counterparts to enter into dealings with them, thereby restraining competition or competing unfairly, they undermine efficient competition through quality, price, and service, breach commercial competition ethics, and jeopardize the normal development of financial markets (examples are where financial institutions act in concert to fix deposit and loan interest rates or related service fees, or prices of other goods or services; conceal the terms and conditions of application for credit cards or specific kinds of loans; fail to disclose information on major transactions; improperly restrain borrowers of loans secured by real estate from repaying their loans ahead of schedule; improperly exercising protective measures over creditor’s rights; fail to provide a clear scope of the guarantor’s responsibility; at the time of marketing a consumer loan combined with products (or services), fail to adequately disclose the nature of the consumer loan, all of which are practices capable of restraining competition or of unfair competition in nature. In view of the legislative purposes of the Fair Trade Law are to maintain trading order, protect consumers' interests, ensure fair competition, and promote economic stability and prosperity, and also to help all financial enterprises to comprehend the applicable provisions of the Fair Trade Law, the Fair Trade Commission has arranged and amended this Explanatory Note within the existing statutory and regulatory framework. This Explanatory Note is intended to help related enterprises avoid violations and at the same time to serve as a reference for handling future cases by this Commission.

2. Definitions

The term “financial enterprises” in this Explanatory Note refers to financial institutions as defined in Article 4 of the Financial Institution Mergers Act and financial holding companies as defined in Article 4 of the Financial Holding Company Act. It therefore includes financial holding companies, banks, credit cooperatives, credit departments of farmers’ and fishermen’s associations, bills companies, financial companies, credit card business institutions, Taiwan Post Co., Ltd., securities and futures enterprises, insurance enterprises, and trust enterprises.

3. Article 6, Paragraph 1, of the Fair Trade Law provides:
The term "merger" as used in this Law means any of the following situations:

1. where an enterprise and another enterprise are merged into one;
2. where an enterprise holds or acquires the shares or capital contributions of another enterprise to an extent of more than one-third of the total voting shares or total capital of such other enterprise;
3. where an enterprise is assigned by or leases from another enterprise the whole or the major part of the business or properties of such other enterprise;
4. where an enterprise operates jointly with another enterprise on a regular basis or is entrusted by another enterprise to operate the latter's business; or
   
5. where an enterprise directly or indirectly controls the business operation or the appointment or discharge of personnel of another enterprise.

Article 11, Paragraph 1, of the Law provides:
Any merger that falls within any of the following circumstances shall be filed with the central competent authority in advance:

1. as a result of the merger the enterprise(s) will have one-third of the market share;
2. one of the enterprises in the merger has one-fourth of the market share; or
   
3. sales for the preceding fiscal year of one of the enterprises in the merger exceeds the threshold amount publicly announced by the central competent authority.

Article 11-1 of the Law further provides:
The provisions of Paragraph 1 of the preceding Article shall not apply to any of the following circumstances:

1. Where any of the enterprises participating in a merger already holds no less than 50% of the voting shares or capital contribution of another enterprise in the merger and merges such other enterprise.
   
2. Where enterprises of which 50% or more of the voting shares or capital contribution are held by the same enterprise merge.
   
3. Where an enterprise assigns all or a principal part of its business or assets, or all or part of any part of its business that could be separately operated, to another enterprise newly established by the former enterprise solely.
   
4. Where an enterprise, pursuant to the proviso of Article 167, Paragraph 1 of the Company Act or Article 28-2 of the Securities and Exchange Act, redeems its shares held by shareholders so that its original shareholders' shareholding falls within the circumstances provided for in Article 6, Paragraph 1, Subparagraph 2, herein.

The Fair Trade Law adopts a “pre-merger notification system” for merger control, i.e., it imposes on enterprises participating in mergers of a certain scale the obligation to file in advance, unless exempted from doing so under the circumstances set out in Article 11-1. That is, after enterprises have filed merger filings, the Fair Trade Commission examines the filings under Article 12 of the Fair Trade Law. If the Fair Trade Commission does not except within a certain period of time, the merger may proceed.

Establishment of financial holding companies: Article 3 of the Regulations for the Examination of Financial Holding Company Merger Cases provides:
Where any of the circumstances set out in the subparagraphs of Article 6, Paragraph 1, and Article 11, Paragraph 1, of the Fair Trade Law is present with respect to the establishment of a Financial Holding Company, a report shall be filed with the Fair Trade Commission, Executive Yuan, before the merger in accordance with these Regulations.
The provisions of the preceding paragraph do not apply under the circumstances set out in Article 11-1 of the Fair Trade Law.
The sales amount of a Financial Holding Company for the preceding fiscal year shall be verified and determined by calculating the combined sales amounts for the preceding fiscal year of all of its subsidiaries in which it has controlling shareholdings.
Under the above provisions, if the establishment of a financial holding company meets the definition of a merger under the Fair Trade Law, a filing for merger of enterprises shall be filed in advance with the Fair Trade Commission.

4.Provisions governing concerted action of financial enterprises

Article 7, Paragraph 1, of the Fair Trade Law provides:
The term "concerted action" as used in this Law means the conduct of any enterprise, by means of contract, agreement or any other form of mutual understanding, with any other competing enterprise, to jointly determine the price of goods or services, or to limit the terms of quantity, technology, products, facilities, trading counterparts, or trading territory with respect to such goods and services, etc., and thereby to restrict each other's business activities.

Article 7, Paragraph 2 provides:
The term "concerted action" as used in the preceding paragraph is limited to horizontal concerted action at the same production and/or marketing stage which would affect the market function of production, trade in goods, or supply and demand of services.

Article 7, Paragraph 4 further provides:
The act of a trade association to restrict activities of enterprises by means of its charter, a resolution of a general meeting of members or a board meeting of directors or supervisors, or any other means, is also deemed as horizontal concerted action as used in Paragraph 2.

The Fair Trade Law regulates concerted action by prohibiting it in principle but permitting it in exceptional instances. Article 14, Paragraph 1, of the Fair Trade Law provides:
No enterprise may engage in any concerted action; unless the concerted action that meets one of the following requirements is beneficial to the economy as a whole and in the public interest, and the application with the central competent authority for such concerted action has been approved:
1) unifying the specifications or models of goods for the purpose of reducing costs, improving quality, or increasing efficiency;
2) joint research and development on goods or markets for the purpose of upgrading technology, improving quality, reducing costs, or increasing efficiency;
3) each developing a separate and specialized area for the purpose of rationalizing operations;
4) entering into agreements concerning solely the competition in foreign markets for the purpose of securing or promoting exports;
5) joint acts in regard to the importation of foreign goods for the purpose of strengthening trade;
6) joint acts limiting the quantity of production and sales, equipment, or prices for the purpose of meeting the demand orderly, while in economic downturn, the market price of products is lower than the average production costs so that the enterprises in a particular industry have difficulty to maintain their business or encounter a situation of overproduction; or
7) joint acts for the purpose of improving operational efficiency or strengthening the competitiveness of small-medium enterprises.
Types of concerted action in which a financial enterprise or a financial institution organization may be involved

Jointly fixing prices: if a financial enterprise, by means of contract, agreement or any other form of mutual understanding, determines prices such as interest rates, insurance premium, and service fee rates, or limits adjustments to such prices jointly with other competing enterprises, and thereby restricts each other's business activities sufficient to affect the market function of supply and demand of services, it is likely to be in violation of Article 14, Paragraph 1, of the Fair Trade Law, unless it has satisfied the exception proviso of Article 14, Paragraph 1 and been approved by this Commission. If a financial institution organization, by means of its charter, a resolution of a general meeting of members or a board meeting of directors or supervisors, or any other means, to restrict activities of enterprises, which is also deemed as horizontal concerted action under Article 7, Paragraph 2 of the Fair Trade Law, it is likely to be in violation of the Law.

Provisions governing deceptive or obviously unfair conduct sufficient to affect trading order: Article 24 of the Fair Trade Law provides: "In addition to what is provided for in this Law, no enterprise shall otherwise have any deceptive or obviously unfair conduct that is able to affect trading order." Article 24 is a catch-all provision. Any act of unfair competition that is not regulated by other provisions of the Fair Trade Law may be reviewed under Article 24 for its applicability. The purpose of Article 24 is to control certain "deceptive conduct" or "obviously unfair conduct" that is "sufficient to affect trading order," and thereby to establish competitive order in the market. Therefore, what is stressed in individual cases is whether one party to a transaction trades with a trading counterpart with misleading methods, active deception or passive concealment of important trading information, or competes or engages in a commercial trade with the trading counterpart through an obviously unfair conduct.

A financial enterprise, which engages in one of the following deceptive or obviously unfair conducts which is sufficient to affect trading order, is likely to be in violation of Article 24 of the Fair Trade Law.
(1)Failure to disclose loan interest rates or refusal to provide contracts
Before a borrower signs a certificate of indebtedness or a loan contract, the financial enterprise shall specify the interest rate in writing; also, in principle, a certificate of indebtedness or loan contract should be made in duplicate originals, with one kept by each of the parties, although in consideration of operational needs a financial enterprise may instead give the borrower a photocopy with the annotation "a genuine and faithful copy of the original" for him or her to retain.
(2)Failure to expressly state in a loan contract the grounds triggering an acceleration clause
In circumstances where it may become necessary for a financial enterprises to take protective measures such as accelerating the maturity of a debt in the event of a deficiency in the borrower's credit, the financial enterprise shall reach an agreement with the borrower in advance defining what constitutes a deficiency in credit: e.g. (1) failure to repay the principal of any single debt as stipulated; (2) application for settlement under the Bankruptcy Act, application for declaration of bankruptcy, application for corporate reorganization, notification of refusal by a bills clearing house, suspension of operations, or rehabilitation; (3) failure to provide security despite a stipulated obligation to do so; (4) death, where the heir declares limited succession or waives the right of succession; (5) declaration of confiscation of principal properties due to a criminal matter; (6) failure to repay the interest on any single debt as stipulated; (7) where security is attached or security is destroyed or lost, declines in value, or is insufficient to secure the creditor's rights; (8) where the actual use to which the party puts the borrowed funds is different from the purpose approved by the financial enterprise; (9) where there is a likelihood the financial enterprise will not be repaid because of a disposition for compulsory execution, injunction, or other precautionary measures. For an acceleration clause based on reasons in items (6) to (9), the party should be given a reasonable period of advance notification or prompting. Apart from the above nine items that may trigger an acceleration clause as set out above, an enterprise may negotiate and stipulate other grounds on a case-by-case basis if it is really necessary for the protection of the creditor's rights. It shall specify such grounds in the contract in a prominent manner such as in bold font or in differently colored font, and to expressly state the effect of accelerating the term to maturity (with notice or without notice).
(3)Requiring a borrower to abide by unspecific catch-all clauses
Any matters on which the provisions of the loan contract and addenda thereto are silent shall be separately negotiated and agreed upon between the parties. Financial enterprises shall not ask borrowers to abide by uncertain catch-all clauses (such as clauses asking borrowers to abide by all current and future rules and by laws of the bank or banking association).
(4)Failure to disclose the scope of obligations secured by a mortgage
Provisions in mortgage security clauses concerning the "guaranteed" scope of creditor's rights secured under a mortgage credit line shall be explained in detail to the [prospective] mortgagor by credit personnel of the financial enterprise, and should be printed in red or large bold black font (or line) to catch the mortgager's attention, so that he or she and the financial enterprise can negotiate whether to include such part in the scope of the security.
(5)Unequal obligations
Financial enterprises are advised to consider adopting provisions having the effect of balancing the rights and obligations of the parties from the perspective of service competition. For example, financial enterprises shall assist in carrying out deletion of the mortgage registration after the borrower has settled the debt secured by the mortgage. A financial enterprise shall not exploit its superior position and requires a borrower to accept obviously unfair contract clauses.
(6)Passing on mortgage registration fees
If a financial enterprise intends to pass on the mortgage registration fee specified in Article 76 of the Land Act, it shall negotiate such passing-on on a case-by-case basis at the time of contract signing and to specify it in the special clause of the contract..
(7)Failure to disclose information of calculating interest or fees relating to deposit operations
A financial enterprise shall reveal the method of calculating interest, the beginning date, or the ending date for the accrual, etc. to depositors in a contract or similar written materials in advance. Before charging service fees in any names, such as “account administration fees,” “transfer fees,” “check ordering fees,” or other service fees, a financial enterprise shall fully reveal the information and cannot directly deduct them.
(8)Failure to disclose the handling of overdue certificates of deposit
A financial enterprise shall specify in advance, in the contract or similar written materials, express provisions for the handling of overdue certificates of deposit, to inform the depositor of relevant information and enable him or her to make the most appropriate choice.
(9)Failure to disclose information relating to checking account balance amounts
If a financial enterprises requires a checking account holder to maintain a certain minimum balance, it shall specify in the contract information such as: (1) notifications and effective time of deposit balances and adjustments; (2) the effect of not meeting the balance amount, such as deduction of fixed fees or suspension of use of checks.
(10)Failure to disclose the method of calculating revolving credit-card credit interest
A financial enterprise shall explain in the contract, in simple, easy to understand language accompanied by specific examples, the method of calculating interest and interest rate levels. Also, for transparency of the calculation of interest, the beginning date for the accrual of revolving credit-card interest shall not be earlier than the date the funds are actually remitted.
(11) Failure to disclose crucial trading information relating to cash-card operations
A financial enterprise shall disclose the nature of the loan of cash cards and the impact of default, the lending rate, the method of repayment, the calculation of each relevant fee, and the procedure of contract termination in the cash-card applications and contracts. Such information shall be expressed in plain wording along with cases to specifically explain the method of calculating interest, late payment interest, penalties, the period from the beginning to end, and the interest rates.
(12)Exploiting superior position to collect a penalty for early repayment of housing loans
A financial enterprise shall not exploit its superior position to improperly assess a penalty from a housing loan borrower for early repayment, or assess a penalty for early repayment without consent of the borrower.
(13)Failure to provide a clear scope of a guarantor’s responsibility
A financial enterprise shall explicitly limit the scope of a guarantor’s responsibility to the amount of the debt resulted from the concrete and specific legal relationship between the debtor and it, or to the maximal amount which is stipulated to limit the guarantor’s responsibility at the time of concluding a contract, when it handles an individual’s credit and requests a guarantor’s guarantee. The guaranty agreement which provides an undefined duration for the continuous debts shall clearly stipulate that a guarantor can terminate the guaranty responsibility at any time in accordance with Article 754 of the Civil Law. When the financial enterprise stipulates a guaranty contract or guaranty clauses in the standard loan contract, it shall record important trading information (for example, the scope of guarantee and the meaning of the maximal amount of guaranty) in the contract in a prominent manner, in bold font or in differently colored font. After the guarantor reads each item of the contract and signs the contract, the financial enterprise provides the original copy or a copy of the loan contract and of the guaranty contract which note that “Completely matched with the original copy” to the guarantor for his or her keeping.
(14)A financial enterprise fails to adequately disclose the nature of a consumer loan being combined with products (or services) when it markets the consumer loan.
A financial enterprise shall adequately disclose the nature of a consumer loan being combined with products (or services) in the loan contract or loan application form provided to its client when it markets the consumer loan on its initiative or outsources the marketing of the loan. It shall separate these documents from other documents such as an installment agreement and agreement for sale and purchase of products (services), so as to prevent the consumer from being misled that he or she is applying for installment. Additionally, the financial enterprise shall record important trading information, for example, its name and the effects of the breach of the contract, on the front pages of the loan contract or loan application form in a prominent manner such as in bold font or in differently colored font.

6.Regarding practices of charging of penalty fees for prepayment of housing loans and “acts of false, untrue and misleading representations or symbols,” this Commission has also issued “Fair Trade Commission Guidelines on Banking Industry Advertising” and “Fair Trade Commission Guidelines on the charge of penalty fees for Prepayment of Housing Loans by the Financial Enterprises”. Financial Enterprises should also take note of and abide by the provisions of those Principles.

7.Penalties and legal liability for violations of applicable provisions of the Fair Trade Law

If any enterprise(s) proceeds with a merger in violation of its filing obligations or promptly proceeds with a merger before the lapse of the exception period set by the Fair Trade Law, or proceeds with a merger where this Commission has made a decision upon the filing to prohibit such merger, or fails to perform an undertaking required by this Commission with respect to the merger, this Commission may prohibit the merger, prescribe a period for such enterprise(s) to split, to dispose of all or a part of the shares, to transfer a part of the operations, or to discharge certain persons from positions, or make other necessary dispositions, pursuant to Article 13 of the Fair Trade Law, and may also assess administrative fines pursuant to Article 40 of the Fair Trade Law.

According to Article 35 of the Fair Trade Law, if any enterprise violates the provisions of Article 14 of the Fair Trade Law and is ordered by the central competent authority pursuant to Article 41 to cease or rectify the conduct or take necessary corrective action within the time prescribed in the order, and upon the lapse of such period, the enterprise fails to cease or rectify the conduct or take the necessary corrective action, or after ceasing, commits the same or a similar violation again, the actor is liable to be punished by imprisonment for not more than three years or detention, or by a fine of not more than one hundred million New Taiwan Dollars, or by both.

According to Article 41 of the Fair Trade Law, the Fair Trade Commission may order any enterprise that violates any of the provisions of the Law to cease or rectify its conduct or take necessary corrective action within the time prescribed in the order; in addition, it may assess upon such enterprise an administrative penalty of not less than fifty thousand nor more than twenty-five million New Taiwan Dollars. Shall such enterprise fail to cease or rectify the conduct or take necessary corrective action by the lapse of the prescribed period, the Fair Trade Commission may issue further orders to the enterprise to cease or rectify the conduct or take any necessary corrective action within the time prescribed in the order, and each time may successively assess an administrative penalty of not less than one hundred thousand nor more than fifty million New Taiwan Dollars until it ceases or rectifies the conduct or takes the necessary corrective action.

In addition to criminal or administrative liability under the law, an enterprise violating the Fair Trade Law is also liable for damages as provided in Chapter V of the Law.

8.This Explanatory Note merely sets out examples and explanations of some common types of practices of financial enterprises that may violate the Fair Trade Law. It is not an exhaustive treatment of the subject, and the Fair Trade Commission will supplement and amend it from time to time. The handling of individual cases must still be determined by the specific facts of the case.