Liquidated Damages Charged by Credit Card Issuers Limited
Chun-yih Cheng

In order to strengthen the supervision of credit card business and to protect consumers' interests, the financial regulator, Financial Supervisory Commission ("FSC"), amended the Regulations Governing Institutions Engaging in Credit Card Business ("Regulations"). A new Article 48II of the Regulations provides that the charge of liquidated damages for the failure to pay minimum amount payable shall abide by the rules promulgated by the FSC. The FSA later issued two guidance letters, which are now replaced by a set of much more detailed rules made by the FSC on 9 February 2011 for the charge of liquidated damages by credit card issuers ("Rules").

In accordance with the Rules, the charge of liquidated damages by credit card issuers for the card holder's failure to pay the minimum amount payable shall be subject to the following limitations:

1. The liquidated damages should be at fixed amount, and should comply with the principle of equity. The maximum consecutive number of times for liquidated damages payments may not exceed 3.

2. The fixed amount of liquidated damages may not base on the amount of the non-payment, but, subject to reasonable reflection of cost increase, could base on the number of times of non-payment.

3. If the minimum amount payable is less than NTD 1,000, no liquidated damages may be charged by the credit card issuer for the failure to pay such amount.

4. If the minimum amount payable exceeds NTD 1,000, maximum liquidated damages for the first, second and third times of non-payment may not be more than NTD 300, NTD 400, and NTD 500, respectively.

5. When deciding the amount of liquidated damages, the credit card issuer should reasonably reflect the handling cost incurred from the breach, provided that such cost should be limited to variable costing only.

6. The credit card issuers should enhance the payment notice or reminder mechanism.

The Rules also require that if there is any inconsistency between the credit card issuer's practice and the Rules, rectification should be made by the credit card issuer before 31 March this year.