Newsletter
NEW RULES FOR THE FINANCIAL INDUSTRY
‧FTC Policy Statement on the Business Practices of the Financial Industry
On 27 December 2007 the Fair Trade Commission (FTC) amended its Policy Statement on the Business Practices of the Financial Industry (the "Policy Statement").
In determining whether an act is deceptive or obviously unfair and will affect the market order, the FTC will look at whether the party involved has knowingly deceived the other party or has concealed any material trading information from the other party or has engaged in competition or transactions in an obviously unfair manner. The amended Policy Statement sets out 14 scenarios which the FTC considers to be deceptive or obviously unfair.
One of the newly added scenarios is the failure to clearly define the liability of a joint and several guarantor. The FTC requires that when a financial institution demands a guarantor in providing personal credit, (1) the contract should clearly state that the liability of the guarantor arises from a specific legal relationship between the debtor and the financial institution, or should expressly state the guarantor's maximum liability; (2) an indefinite guarantee for successive debts should expressly stipulate that the guarantor may cancel his guarantee at any time in accordance with Article 754 of the Civil Code; and (3) in standard guarantee contracts, material information on the transaction (such as the extent of guarantee and the definition of the maximum-amount guarantee ) should be displayed in bold letters or a different color. The guarantee contract must be read and signed by the guarantor, and the financial institution must provide the guarantor with the original copies of the loan contract and the guarantee contract, or their certified photocopies.
Because of the amendments, financial institutions should pay special attention to the wording of loan guarantees, and should no longer use vague wording like "guarantees all present and future debts" and should comply with relevant requirements.
‧Required Content of Standard Contracts for Personal Motor Vehicle and Housing Loans
The Legislative Yuan (LY) enacted the Consumer Insolvency Act (CIA) on 8 June 2007. After cross-party consultation, the legislators deleted Article 55 of the original bill, which protected the residence occupied by a debtor. However, the LY decided that in order to protect debtors' related rights during an individual debt adjustment period, a standard housing loan contract should contain a provision affording protection similar to the deleted Article 55; that all mortgage contracts for personal residence concluded before the amendment should be changed accordingly; and that during negotiation and individual debt adjustment period, financial institutions should not enforce acceleration clauses without legitimate reasons.
Based on the above decision, the Financial Supervisory Commission proposed an amendment to Article 5-1 of the Required Content of Standard Contracts for Personal Motor Vehicle and Housing Loans so that if a borrower (1) has already requested negotiation with the financial institutions under Article 151 of the CIA, (2) has not paid two install-ments or less, and (3) agrees to continue to repay the loan as scheduled in the original loan contract, then the outstanding principal and interest, penalties, and related charges should be evenly apportioned over the remaining repayment period, with the interest calculated at the rate agreed in the original loan contract. Even if the original loan contract allows the financial institution to demand repayment of the loan in a lump sum, the financial institution should not enforce such acceleration clause or its rights over the collateral without legitimate reasons.
However, if the borrower misstates his debts, conceals his assets, or gives preferential treatments to one or more creditors, the financial institution may, after giving a notice to the borrower, enforce the acceleration clause and its rights over the collateral, that is, the personal residence of the borrower.