In Vietnam, in addition to the basic provisions in the 2015 Civil Code, the issues of controlling standard form contracts in transaction with consumers are generally regulated in the LoCP and guiding documents. In particular, as well as other sectors, the financial and banking sectors are generally governed by the following main contents:
2.1. Subject of control
Under the LoCP and guiding documents, subject of controlled standard form contracts can be divided into two groups, including: (i) essential goods and services on the list promulgated by the Prime Minister subject to a Registration Review and (ii) other goods and services that are not subject to registration. Accordingly, it can be said that the state administrative body for consumer protection have the right to intervene in any standard form contracts used to form transactions with consumers, including the financial and banking sectors.
2.2. Scope of control
The Ministry of Industry & Trade and the Department of Industry & Trade are empowered by the law to control standard form contract regarding the following issues:
2.2.1. Controlling the form and language of standard form contract
The contract’s form and language are prescribed in Article 7, Decree No.
99/2011/ND-CP dated 27/10/2011 detailing and guiding a number of articles of the LoCP (hereinafter referred to as Decree No. 99/2011/ND-CP), including: (i) The language is Vietnamese; the contents are clear and understandable; the font size of the text is at least 12;
and (ii) the paper background and ink color used in standard form contracts must contrast.
These requirements on the contract’s form are in order to assure the ability of consumers to access easily and fully the contract’s content.
The clarity and straightforwardness of standard terms are broadly required on the worldwide scale. For example, to reflect the common situation in European countries, Article II.9:402 of the Draft Common Frame of Reference (DCFR) for the harmonization of European private law on “Duty of transparency in terms not individually negotiated” states that: “Terms which have not been individually negotiated must be drafted and communicated in plain, intelligible language.” The philosophy of this Article aims at creating chance for consumers to perceive fully and exactly the rights and obligations arising from standard terms. Accordingly, they can make rational decision whether to enter into the contract or not.
In relation to font size at least 12, whereas such requirement is basically met in other areas, smaller font size situation has been occurred in banking sectors, especially for bank account and ATM card opening documents (with font size approximate only 8-10), even in the loan documents. Banks explain the reason for such situation since it aims to design compact, convenient dossiers for customers to store, ensure quick procedures with less required pages for signing and save significant printing costs. However, this is one of the troublesome problems causing customers do not read, refuse to read and even cannot read the documents given by the banks.
In relation to the clarity and straightforwardness, there are some examples in standard form contracts of banks and financial companies currently which may not meet above requirement, as following:
Example 1: Standard form contracts contain unclear phrases (especially provisions related to the rights of banks and obligations of consumers) such as "under the provisions/
requirements of the bank"; "related expenses". These provisions should be specified or referred to sources of information that customers can search for more information (for example: publicly announced at the bank's website/transaction counter).
Example 2: The customer is obliged to pay the fees and expenses prescribed by the bank in each period.
Related to those provisions, it is difficult for the customers to define fees and costs which they can bear during contract process before signing the contract. Meanwhile, for loan contracts, prepayment fees or penalties for breach of contract is confidential information, directly impact the loan’s decision of consumer. Accordingly, banks and financial firms need to clarify such provision, such as:
- Supplement the main fees to the contract or debt indenture such as early repayment charges, breach of contract, etc.
- Incurred fees and expenses: regulate that customers are obligated to pay other fees, expenses listed at the counter or publicly announced on the bank's website in accordance with the law.
Example 3: The bank is entitled to change the interest rate with a notice sent to customers 30 days before the date of application/ the bank is entitled to change the interest rate at their decision.
Customers may be in a passive state when above provisions are applied. They even face some risks caused by unforeseen adjustment margin of time and interest rate.
Accordingly, to satisfy the requirements of the LoCP, banks must clarify the terms of interest rate changes such as:
- Regulations on objectivity rule of interest rate adjustment to ensure customers can actively research and arrange debt repayment sources;
- If banks wish to change the interest rate in other cases, they should to clearly stipulate these cases arising from objective reasons such as the management policy of the State, customers are no longer eligible to enjoy preferential interest rates (example: a bank officer resigned) so the normal interest rate as publicly announced at the website or at the counters will be applied.
2.2.2. Controlling the validity of standard terms
Currently, the most important provision of Vietnam law regulating the control of standard form contract is Article 16 of the LoCP 2010 listing 09 contractual terms which are invalid for consumers if introduced in standard form contract and general trading conditions.
Such terms can be divided into three groups as follow:
Group one: including terms which exclude or restrict the liability of traders to consumers, concretely:
- Terms excluding liability of organizations or individuals trading goods and/or services to consumers as prescribed by laws (Article 16.1.a);
- Terms restricting or excluding the right to complaint and take lawsuits by consumers (Article 16.1.b);
- Terms excluding liability of organizations or individuals trading goods and/or services through a third party (Article 16.1.g).
Group two: including terms which allow traders to unilaterally decide in transactions, concretely:
- Terms allowing organizations or individuals trading goods and/or services to unilaterally change the conditions of contract or general trading conditions (Article 16.1.c);
- Terms allowing organizations or individuals trading goods and/or services to unilaterally determine the consumer who fails to perform one or more obligations (Article 16.1.d);
- Terms allowing organizations or individuals trading goods and/or services to set forth or change the price at the time of delivery of goods or providing of services (Article 16.1.dd);
- Terms allowing organizations or individuals trading goods and/or services to explain the contract in case of different interpretation of the terms (Article 16.1.e);
- Terms allowing organizations or individuals trading goods and/or services to transfer rights and obligations to third parties without the consumer’s consent (Article 16.1.i).
Group three: including terms which prevent parties from enjoying certain rights, concretely:
- Terms forcing consumers to comply with obligations even if the organizations or individuals trading goods and/or services fail to fulfil their obligations (Article 16.1.h).
There are several examples in standard form contract of banks and financial companies which may be invalidity in according to Article 16 of the LoCP, as following:
First, terms allowing organizations or individuals trading goods and/or services to transfer rights and obligations to third parties without the consumer’s consent (Article 16.1.i the LoCP).
Example 1: The bank is totally entitled to assign or transfer to third parties all or part of their rights, interests and obligations as specified in the contract.
Such term allows the bank to transfer or assign contractual rights and obligations to a third party without the consumer’s consent. Therefore, it may be invalidity in according to Article 16.1.i of the LoCP. Accordingly, banks must clearly limit the cases in which they are allowed to assign their contractual obligations to the third parties, such as the case of debt trading or debt settlement. For the other cases, the bank is required to transfer their obligations with the consent of consumers. For example: “The bank is not entitled to transfer
their rights and obligations to the third parties without the consent of the consumers except the cases of debt settlement or debt trading according to the State Bank’s provisions."
Second, terms excluding liability of organizations or individuals trading goods and/or services to consumers as prescribed by laws (Article 16.1.a the LoCP).
Example: There are phrases excluding liability of the bank in the ATM card opening contract such as: "customers is totally obligated for their individual transactions arising from ATM card/ in case the ATM card is forged or taken advantage of…”
For such terms, it is necessary to allow the customer not to be held responsible in the case of the bank's fault or the customer has complied with the provisions of the contract and the law (such as customer has fully implemented their obligation to notify, provide the bank with required documents in case of ATM card loss but the card is not locked by the bank due time specified in the ATM card Opening Regulations).
Third, terms allowing organizations or individuals trading goods and/or services to unilaterally change the conditions of contract or general trading conditions (Article 16.1.c of the LoCP).
Example: The bank is entitled to amend and supplement the Card Using Terms and Conditions with only announcement on their website.
In according to the law, the bank should to add and clarify the following contents in that term:
- Beside publicly posting on the website, the bank shall provide customers with amendment and supplement information via personal contract methods registered by the customer such as SMS, email;
- Providing customer with specific responding time when receiving such information from the bank;
- Providing customer with the right to terminate signed contract in the case of customer does not agree with its supplement and they are only obligated to pay supplied services (according to Article 18 of Decree 99/2011/ND-CP).
In principle, this approach of the LoCP 2010 creates a quick and effective mechanism controlling standard form contract, which decreases the approach cost for consumers or helps the issuers of standard form contract to self-control the equity of the terms. Therefore, a mechanism preventing the application of unequal terms is developed without the participation of the court or administrative agencies.
However, there are two shortcomings with this approach:
Firstly, besides the remarkable advantage of precision, the total forbiddance prescribed in Article 16 of the LoCP also contains some disadvantages, that is, the rigidity and insufficiency to deal with the specific situation and business field of each market.
For example:
(i) For contracts that heavily depend on the market change and require a long-term performance such as in the field of financial and banking (for example: ATM opening contract; contract for opening and using payment account), the requirement for traders to contact and re-negotiate with every customer is impossible and infeasible, or
(ii) For merge & acquisition or project transfer transactions, the requirement for enterprises to reach a consent with consumers when they transfer their rights and obligations to a third party is also troublesome, since the objection of just a handful of consumers may cause the enterprises to cease the entire transactions.
Second, lacking of a general provision to be the basis for controlling the unfairness of standard terms. The list of invalid terms in Article 16 of the LoCP cannot comprise all types of unfair terms in the market. For instance, a specific case is currently missing is the term on the sanction for violation of parties which is unfair and inappropriate by stating that, the buyer will always be imposed harsher sanction than the seller. Similarly, in case where there is an excessively unfair term that has not been included in the list yet, the competent agencies do not have the legal basis to control such term. The missing of a general provision also means the missing of an important tool to establish a standard for fairness in Vietnamese contract laws as well as to assure the flexibility of the controlling mechanism towards the rapid change of socio - economic life.
2.3. Control mechanisms
Corresponding to the two groups of standard form contracts as mentioned in Section 2.1, it can be seen there are three control methods in the LoCP, including:
First, Registration Review of standard form contracts
Traders which provide goods or services that are on the list of essential goods and services promulgated by the Prime Minister have the obligation to register their standard form contracts with the state administrative body for consumer protection. After fulfillment of their registration obligation, they are entitled to use their registered standard form document to enter into contract with customers.
Second, General Review
For the purpose of controlling standard form contract in the fields of goods and services not on the list of essential goods and services issued by the Prime Minister, state administrative body for consumer protection has the right to require traders to amend or delete contents that violates the LoCP and general principles on entering into contracts. Within ten (10) working days from the date of request’s receipt from the competent authority, traders must amend and delete the infringing content and provide their consumers with notification on the amended contents. Besides, the competent authorities have the right to carry out groups of specialized inspection/ examination and punish the violating companies.
With respect to the financial and banking sectors, from October 15, 2015 to October 22, 2018, there are 03 services in this field (including: issuing ATM cards; opening and using
payment account services (applied to individual customers); personal loans (for consumption purposes only)) which subject to Registration Review of standard form contracts according to the Prime Minister's Decision 35/2015/QD-TTg dated August 20, 2015 on amending and supplementing his Decision No. 02/2012/QD-TTG dated January 13, 2012 on promulgating the list of essential goods and services.
During this period, about 60% (about 60/100) banks, financial firms submitted their registration dossiers at Vietnam Competition and Consumer Authority (VCCA), Ministry of Industry and Trade, of which approximately 30% of total banks and firms completed registration obligations (Ministry of Industry and Trade, 2017). Thus, for 3 years of implementing Decision 35/2015/QD-TTg, there remains about 40% of banks and financial firms that did not implement their registration obligation and in total, less than 20% of all banking institutions and financial firms completed their registration obligations regarding to categories of standard form contracts subject to ex ante administrative control.
Since October 22, 2018, the Prime Minister issued Decision 38/2018/ QD-TTg of September 5, 2018 amended Decision No. 35/2015/QD-TTG to remove the above services from the scope of essential goods and services subject to Registration Review of standard form contracts. Accordingly, the above-mentioned services as well as all services of banks and financial companies are subject to General Review provided in the LoCP.
Since then, VCCA has carried out 06 groups of specialized inspection and examination in the field of financial and banking (Ministry of Industry and Trade, 2018- 2020). Inspection and examination results show there remains contents which are inappropriate to the LoCP on consumer protection in general and standard form contracts in particular in nearly 100% of inspected traders.
With above results, although the implementation has been widely exercised, the control mechanisms including Registration Review and General Review remains ineffective to improve the quality of standard terms in contracts entered into with consumers in the following aspects:
Firstly, the level of compliance of the banks and financial firms with consumer protection laws on the standard form contracts has not been significantly improved expressed in number of traders unfulfilled their registration obligations in Registration Review period and the percentage of inspected traders that did not comply with legal regulations in General Review.
Second, the ineffectiveness of current control mechanisms since it depends mostly on the self-discipline of business entities and the actual legal consequences of non-compliance are basically administrative violations. Meanwhile, the current punishment level remains inappropriateness as it can not impose enough deterrence which shown in three main aspects:
(i) the fine remains low, do not commensurate with the risk of damage occurring to a large number of consumers and the amount of profit that businesses can earn; (ii) the lack of meaning additional sanction or remedial measures which benefit to consumers due to current
fine or remedial measures are just obligations to the state; (iii) the lack of meaning measures to prevent risk, for example, it is not allowed traders to enter into a new standard form contract for a certain period in the case of breaching their obligations without remedy.
Accordingly, in addition to promoting the role of existing mechanisms, it is necessary to research and develop other mechanisms promoting the consumer representative role of consumer protection bodies. Also, it must aim to break the limitation of liability of business entities on the formed transactions within the current administrative penalties.