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In late August 2002, the Fair Trade Commission passed its Guidelines for Handling Cases In-volving the Imposition by Financial Institutions of Penalty Charges for Early Repayment of Housing Loans. The guidelines apply only to housing loans taken out with financial institu-tions by natural persons. They do not apply to other revolving credit arrangements using real estate as collateral. The main points include the following:
When a financial institution issues a housing loan with restrictions on early repayment, it should provide a written explanation to the borrower of the method of calculation of in-terest and the conditions of the loan, and give the borrower the free choice of other loan conditions under which a loan may be repaid at any time.
If a financial institution issues loans with re-stricted repayment, it may impose penalty charges on borrowers for early repayment only if the real interest rate during the re-stricted period is more advantageous. More advantageous means that during the period of restriction on repayment, the rate of interest on such loan is lower than the rate of interest over the same period on a loan that may be repaid without penalty at any time.
A financial institution may collect a penalty charge for early repayment only if this is spe-cifically and individually agreed with the borrower by special clauses in the loan agreement. Special clauses means that the financial institution must make the borrower clearly aware of them by means such as bold type, special notes, or the requirement to in-dividually stamp the clauses.
The amount of a penalty charge for early re-payment should be gradually reduced in con-sideration of such factors as how long the loan has already run, and the amount still out-standing. A financial institution may not re-fuse a borrower's request to repay a housing loan early, and it must issue a certificate of repayment as quickly as possible.
If a pre-existing loan agreement does not comply with the guidelines, the borrower may request the financial institution to adjust it to bring it into compliance; the financial institu-tion should make such adjustments within three months. Where institutions fail to do so, the FTC will investigate individual com-plaints.
If confirmed on investigation by the FTC, an institution's failure to comply with the guide-lines will be regarded as a violation of Article 24 of the Fair Trade Law, and FTC will im-pose a fine of NT$50,000 to NT$25 million.
