Newsletter
INDEFINITE GENERAL PROVISIONS IN LOAN AGREEMENTS BREACH FTA
At a recent commissioners' meeting, the Fair Trade Commission (FTC) determined that a certain commercial bank's use of a standardized loan agreement to impose on borrowers a re-quirement to comply with indefinite general provisions was an obviously unfair act sufficient to adversely affect the orderly conduct of trade and in violation of Article 24 of the Fair Trade Act. The FTC ordered the bank to cease the above unlawful action immediately, and im-posed an administrative fine of NT$200,000.
In the above case, the bank's standard short-term credit facility agreement included the following provision: "In addition to complying with special provisions of this agreement and other agree-ments between them, the parties hereto shall comply with all current and future rules of the Bankers' Association of the ROC." The FTC noted that professional financial services enter-prises and general consumers enjoyed unequal access to information regarding the current rules of the Bankers' Association, and future changes in Bankers' Association rules might affect the existing rights and interests of a borrower, for example by making the transaction conditions less favorable to the borrower, or by imposing restrictions. This might cause the borrower's decision to enter into the transaction to be in-correct at the time of signing the agreement. Accordingly, the FTC found that for a financial services enterprise to use a standardized form of agreement to improperly require a borrower to give general consent when entering into an agreement is a violation of Article 24 of the FTA.
The FTC stated that in using its standardized agreement to require borrowers to comply with indefinite general provisions, the bank was abusing its advantageous market position to ap-ply improper pressure on the borrower. This was an obviously unfair action sufficient to adversely affect the orderly conduct of trade, and was thus in violation of Article 24 of the FTA. Accord-ingly, the FTC ordered the bank to cease the above unlawful actions, and imposed a fine of NT$200,000 according to Article 41 of the FTA.
In view of the above decision, enterprises need to consider whether indefinite general provisions included in their standardized agreements are likely to violate Article 24 of the FTA due to inequality of access to information.