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The Legislative Yuan passed the Financial Consumer Protection Act ("Act") after three readings on 3 June 2011, which was enacted by the President on 29 June 2011, and authorized the Executive Yuan to announce the effective date of the Act. The Legislative Yuan also adopted an ancillary resolution which requires the Financial Supervisory Commission, Executive Yuan (FSC) to establish by donation an institution responsible for handling financial consumer disputes by 31 December 2011. Key points of the Act are summarized as follows:
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Introduction
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Pursuant to the newly enacted Act, the financial service providers subject to the Act include banks, securities firms, futures firms, insurance companies, issuers of electronic stored-value cards and other financial service providers as publicly announced by the FSC ("Financial Service Providers") (Article 3 of the Act). The consumers of financial services ("Financial Consumers") to be protected by the Act refer to those consuming any financial product or service offered by Financial Service Providers, excluding (i) professional investment institutions and (ii) the individuals or juristic persons who meet certain criteria of financial capacity or professional ability specified by the FSC (Article 4 of the Act). Any civil dispute between a Financial Consumer and a Financial Service Provider shall be governed by the Act. It is prohibited to limit or exempt from in advance any liabilities of a Financial Service Provider to a Financial Consumer set forth in the Act and any agreement between a Financial Service Provider and a Financial Consumer providing otherwise shall be null and void (Articles 5 and 6 of the Act).
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Protection of Financial Consumers
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With respect to the contracts signed between a Financial Service Provider and a Financial Consumer, the Act provides several principles for the protection of Financial Consumers, including the following: (i) the terms and conditions of the contract signed between a Financial Service Provider and a Financial Consumer for the provision of financial products or services shall be based on the principles of fairness, reasonableness, equality, reciprocity and good faith; (ii) any conspicuously unfair term and condition of a contract signed between a Financial Service Provider and a Financial Consumer shall be null and void; (iii) if the terms and conditions are ambiguous, interpretation thereof shall be favorable to a Financial Consumer; and (iv) when providing financial products or services, a Financial Service Provider shall exercise its duty of care as a good administrator (Article 7 of the Act).
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Under the Act, when conducting an advertisement, promotion or marketing activities, the Financial Service Providers shall not falsify, conceal, hide or take any action which will mislead Financial Consumers, and shall be obliged to ensure the truthfulness of the advertisements while the obligations of the Financial Service Provider toward Financial Consumers in an advertisement shall not be less than those indicated in the materials or explanations made to Financial Consumers during the said advertisement, promotion or marketing activities. The FSC is authorized to set forth the rules governing the manner, contents and matters for compliance in respect of the advertising, promotion or marketing activities. The Act explicitly prohibits introducing or recommending any financial product or service by means of financial education and informational promotion (Article 8 of the Act).
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The Act further provides that when signing the abovementioned contracts with a Financial Consumer, the Financial Service Provider shall "fully know" the relevant information of such Financial Consumer to ensure the suitability of the particular product or service concerned, and shall provide the Financial Consumer with sufficient explanations of the content of the materials and sufficient risk disclosure regarding the financial product concerned. The Act does not provide details of the foregoing and has authorized the FSC to set forth relevant rules thereunder (Articles 9 and 10 of the Act).
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Where a Financial Service Provider breaches either obligation of the "suitability of product or service" or the "mandatory disclosure of contents and risks" as mentioned above and results in any damages to a Financial Consumer, the principle of "Reverse Burden of Proof" shall apply, i.e., the Financial Service Provider shall be liable for such damages unless the Financial Service Provider can prove that such damages are caused by any reason other than its failure to assess the product suitability, its failure to explain, its untruthful or incorrect explanation, or its failure to sufficiently disclose the risks involved (Article 11 of the Act).
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The Act contains no penalty provisions. Nonetheless, it expressly provides that Financial Service Providers shall incorporate the requirements under Articles 8 to 10 into their internal control and audit systems and must implement them thoroughly (Article 12 of the Act). Therefore, if a bank violates any of Articles 8 to 10 of the Act, the competent authority may still impose on the bank an administrative fine in a range of NT$2 million to NT$10 million pursuant to Paragraph 7 of Article 129 of the Banking Act for failure to implement its internal control and audit systems thoroughly in accordance with Article 45-1 of the Banking Act.
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Mechanism for Financial Consumer Dispute Resolution
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With respect to the resolution of financial consumer disputes, the Act provides an alternative mechanism similar to "small-claim arbitration" other than litigation. The Dispute Resolution Institution ("Institution") will be a foundation, to be funded by donation from the government and the private sector. The total donation amount will be NT$1 billion consisting of private donations and a government budgeted contribution over 5 years. Upon its establishment, the Institution will have received NT$200 million in donated assets. The Institution shall set up a fund, the sources of which shall include (i) donated assets; (ii) annual fees and service fees payable by Financial Service Providers pursuant to Paragraph 4 of Article 13 of the Act; (iii) accrued interest and operating revenues of the fund; and (iv) other donations (Article 14 of the Act).
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After accepting the application for review, the Institution shall consider the facts and evidence of the dispute and conduct its review independently in accordance with the fairness and reasonableness principles (Article 20 of the Act). Neither party to the financial consumer dispute may disclose any information on any application or explanation provided nor any concession made by the other party during the procedure without the consent of the other party unless the information has been in public domain or the disclosure of such information is required by applicable laws or regulations. The Institution and its staff shall keep confidential all information relating to the dispute and the review process unless otherwise provided by applicable laws or regulations or agreed by both parties to the dispute (Article 19 of the Act).
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In principle, the Review Committee will review the written documents relating to the dispute only, but may notify the parties or other related persons to be present to express their opinions (Article 26 of the Act).
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Each party may inform the Institution in writing of his/her acceptance of or objection to the Review Decision within the stipulated period commencing from the service of the Review Decision. A Review Decision will not be deemed successfully reached without being accepted by both parties, meaning that the parties are not necessarily bound by such Decision. Nonetheless, where a Financial Service Provider has agreed in a prior written document that the resolution procedure under the Act shall apply, or has indicated its willingness to adopt the said procedure in its contract regarding its products or services or any other documents, such Financial Service Provider shall accept every Review Decision made by the Review Committee to the extent that the amount of payment or value of the asset under the Review Decision to be paid by such Financial Service Provider to the Financial Customer shall not exceed a certain threshold (Article 29 of the Act).
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The Financial Consumer may file an application to the Institution, requesting the Institution to submit the Review Decision or Mediation Resolution to the court for recognition, within 90 days from the date when the Review Decision is made or the Mediation Resolution is reached. The Institution shall submit to the local court where the Institution's office is located the Review Decision, Mediation Resolution and related files and evidence within 5 days upon its receipt of such request. The court shall recognize the same unless such Review Decision or Mediation Resolution violates any applicable laws or regulations, is contrary to public order or good morals, or is not enforceable due to other reasons. A Review Decision or Mediation Resolution recognized by the court in accordance with the Act shall have the same effect as a final and binding civil judgment, and no action should be initiated separately with respect to the same dispute (Paragraph 5, Article 23 and Article 30 of the Act).
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Please refer to the diagram attached hereto for the procedure of this mechanism for dispute resolution.
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Impact on Financial Service Providers
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The Act is divided into two major parts: one on the protection of Financial Consumers, and the other on the Institution exclusively responsible for resolution of financial consumer disputes. With respect to the protection of Financial Consumers, considerable impacts are expected on the business practices of Financial Service Providers and the cases to be brought before the court because the Act increases the obligations and liabilities of Financial Service Providers and contains numerous mandatory provisions for the protection of Financial Consumers.
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In addition, the establishment of the Institution will accelerate the resolution process of financial consumer disputes and change the current practice that most financial consumer disputes are submitted to the court for resolution. As a result, the Act will bring certain impacts on the creditor protection process and debt collection practices of Financial Service Providers.
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To date, the effective date of the Act, which the Executive Yuan is authorized to set, is yet to be determined, and many regulations thereunder are yet to be made by the competent authority. Considering the extensive impacts of the Act, it is suggested that each Financial Service Provider undertakes a compliance review of its contracts executed with Financial Consumers for provision of financial products or services and its current business operation to ensure its compliance with the Act and prevent financial consumer disputes in the future. It should also closely monitor the developments with regard to the relevant regulations being drafted by the competent authority so as to be well-prepared for any impact after the Act becomes effective.
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Diagram of Mechanism for Financial Consumer Dispute Resolution
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