Newsletter
FTC CLAMPS DOWN ON AC-CELERATION CLAUSES IN STANDARD CONTRACTS
The Fair Trade Commission (FTC) recently conducted an investigation into acceleration clauses in the standard contracts used by finan-cial institutions for banking transactions with their customers. The FTC penalized a number of institutions because first, it found that certain standard contracts s clearly violated the restric-tions on acceleration clauses set out in the Policy Statement on the Business Practices of the Fi-nancial Industry promulgated by the FTC, and secondly, the standard contracts contain a "catch-all acceleration clause" on the grounds of inadequate creditworthiness, which the FTC deemed to be in violation of Article 24 of the Fair Trade Act (FTA), which prohibits patently unfair business conduct that affects the trading order.
However, the FTC does not impose penalties against certain financial institutions that also include the catch-all acceleration clause in their standard contracts entered into with corporate borrowers.
A catch-all acceleration clause on grounds of inadequate creditworthiness, as referred above, means a provision whereby a financial institution may directly declare that the outstanding amount of a loan to a customer must be repaid immedi-ately and in full, if the financial institution con-siders that a situation has arisen in which it needs to protect its claims against the customer. As it is impossible for a financial institution to specify in the terms of its standard contract all possible circumstances that may adversely affect a cus-tomer's credit standing, there is a genuine need for the catch-all acceleration clause, and this explains its wide use by financial institutions in Taiwan.
However, following the FTC's determination that such provisions violate Article 24 of the FTA, financial institutions will no longer be able to include them in their standard loan agreements. This will have a considerable impact on financial institutions' ability to protect their claims in the future.