To protect the rights and interests of consumers, the FSC laid down reasonable and uniform requirements on collections of default interest and penalties of home and consumer loans. All banks are required to comply with the following requirements from July 1, 2019.

1.When a borrower fails to repay by the payment due date and has not defaulted for consecutive billing periods (for example, he/she occasionally forgets to make repayment for a foreign trip or busywork), his/her outstanding principal is not immediately due for repayment. Hence, banks shall charge default interest and variable default penalties based on the “scheduled principal repayment of current period.”

2.If the borrower who experiences financial difficulty has not been able to make timely repayment every month and the bank declares the principal immediately due and payable according to the acceleration clause, the bank may charge interest during the default period and default penalties according to the “outstanding principal balance”. 

3.The bank may waive its charge of operation costs or charge such fees in a way more favorable to the borrower according to the agreement. 

4.All banks shall review whether their current calculation and collection practices for the default interest and penalties meet the requirements above. Any modifications of related information systems and agreement terms needed for compliance with the new requirements shall be carried out by the end of September, 2019. However, banks shall follow the new rule of default penalties from July 1, 2019, in the cases that the acceleration clause has not been invoked. All other rules mentioned above will be applicable after banks’ modification of the IT systems and related agreement term(s).