FTC DRAFTS GUIDELINES FOR MORTGAGE REPAYMENT PEN-ALTY WARNINGS

07/01/2002

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The FTC is of the view that high penalty charges demanded by Taiwan’s financial institutions for early repayment of mortgages create a barrier to borrowers’ choice for loans from other financial institutions. It has, therefore, drafted the Guide-lines on Warnings Regarding Penalty Charges for Early Repayment of House Loans, to regulate such practice. The main points of the draft are as follows:

Financial institutions should offer consumers the choice of house loans that may be repaid at any time, and those on which early repayment is barred for a certain period. Financial insti-tutions should offer preferential interest rates on the latter type of house loans.

If the preferential interest rates consist of a lower initial rate followed by incremental in-creases, the period set by the institution during which the house loan may not be repaid should not be longer than the period of the lower in-terest rates.

However, both the Bureau of Monetary Affairs, MOF and banks have questioned the draft on grounds that the practice of penalty charges for early repayment is widespread internationally, and that as long as contracts are fair and rea-sonable, the authorities should respect the market. For its part, the FTC stated that it would take account of the opinions of all its commissioners, and amend the draft as necessary before prom-ulgating the guidelines; it would also provide relevant information to financial institutions.