Thu, May 19, 2011 - Page 11 News List

FSC cracks down on banks that provide interest-free loans

By Crystal Hsu  /  Staff Reporter

Starting on Aug. 1, banks will only be allowed to charge application fees for personal loans once and must take the initiative to clearly explain various fees so that customers will be better informed, the Financial Supervisory Commission’s (FSC) banking bureau said yesterday.

The regulation change, announced in January, is intended to prevent lenders from shifting revenues previously received as interest to account maintenance fees or other regular monthly charges, the bureau said.

Some banks had advertised zero-interest personal loans to attract customers. However, the move had raised concerns that lenders might collect other fees on a monthly basis to offset the loss of interest income, the bureau said.

To avoid that, the commission said it has defined application fees as a one-time charge. Therefore, banks must not collect such fees again under a different name, the bureau stipulated.

In addition, banks should compare the various fees with interest rates so customers can better weigh the costs before taking out personal loans, the bureau said.

Even so, there are concerns that banks may impose a large number of one-time charges on consumers. In response, the bureau said the application fees should account for only a minor percentage of the personal loan’s amount, meaning that an unreasonable one-time charge is not allowed.

No banks have been promoting interest-free personal loans since the policy change was announced, the bureau said.

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