The Consumer Finance Law Review: Thailand
Consumer finance in Thailand has been growing steadily in recent years. According to statistics from the Bank of Thailand (BOT), there are more than 17 million personal loan accounts and more than 24 million credit cards issued to consumers as at October 2020.2 While financial services are mostly provided to consumers by financial institutions under the supervision of the BOT, certain services may also be provided by non-financial institutions. These non-financial institutions, however, are regulated under rules and regulations issued by the BOT to control the provision of restricted services, such as personal loans, credit cards and e-payment services.
With the emergence and increased use of the social media, online shopping and online trading platforms, channels of financial services have become broader so as to provide consumers access to the most convenient and up-to-date range of services. Financial services are currently available to and accessible by consumers through various channels, both online and offline. Traditional payment systems such as over-the-counter and cash payments are expected to be gradually reduced while usage of online channels like mobile applications and e-Money are expected to increase. This is in accordance with the National e-Payment Master Plan initiated and implemented by the Thai government since 2015.
Legislative and regulatory framework
The main pieces of legislation regulating consumer payment, deposit and lending services in Thailand are the Financial Institutions Act 2008 (FIA), the Bank of Thailand Act 1915 (BOTA) and the Civil and Commercial Code (CCC). The FIA and the BOTA, including subsidiary rules and regulations issued thereunder, generally prescribe the scope of permitted and prohibited activities for service providers providing payment, deposit and lending services to customers, whereas the CCC governs the legal relationship between consumers and service providers in respect of the services provided.
The issue of consumer protection is also becoming increasingly important, and protection is afforded mainly under the Consumer Protection Act 1979 (CPA), pursuant to which minimum standard terms and conditions must be reflected in certain types of financial contracts, and the Debt Collection Act 2015 (DCA), which was enacted to establish fair collection practices and to penalise unfair deceptive and violent practices in debt collection.
The BOT is the main authority in charge of supervising and examining financial institutions (and non-financial institutions in certain cases, e.g., granting personal loans and credit cards). Where financial institutions violate or fail to comply with the FIA, the BOT has the power to take certain action, for example, issuing a warning, demanding compliance with relevant requirements, or ordering the closure of offending institutions.
In January 2012, the Financial Consumer Protection Centre (FCC) was established by the BOT to serve as a one-stop service centre to handle enquiries and complaints regarding financial products and services provided by service providers, as well as to resolve problems, coordinate, and track results of complaints. The FCC generally forwards a consumer's complaint together with its suggestions to the relevant department within the BOT for consideration. Consumers are easily able to file a complaint with or contact the FCC for consultation through several channels (for example, doing so by phone, fax or email, or by visiting the BOT's offices).
The BOT is authorised to regulate the operations of service providers, and has the power to take disciplinary action in the event of non-compliance. In the event of a dispute between the consumers and the service providers concerning their contractual relationship or the subject matter of a transaction (for example, a demand for repayment of a debt or return of property under leasing contracts), the parties would be required to commence court proceedings.
The Office of the Consumer Protection Board (OCPB) is the authority that specifically oversees businesses and practices subject to the control measures under the CPA. In cases where a contract between the consumer and the service provider does not comply with any of the requirements under the CPA (for example, requirements as to the language of the contract), the consumer may refer the issue to the OCPB for its determination, or request that the OCPB file proceedings against the service provider on the consumer's behalf, as the case may be.
Payment methods available for consumers may generally be divided into cash payments and non-cash payments.
Cash payment is the most traditional, common and widely accepted payment method in Thailand. Payments made by consumers to recipients by cash are subject to and governed by the provisions under the CCC; for example, the provisions on contracts and debts. The BOT is the main authority responsible for the issue and management of banknotes and other government notes, as well as the formulation and implementation of monetary policies.
Apart from cash, payments can be made by paper-based methods. Examples of paper-based payments include payment orders, cheques, bills of exchange and promissory notes. These modes of payments are governed by the CCC. Relevant service providers such as issuing banks would be subject to control measures under the rules and regulations announced by the BOT from time to time.
Non-cash payments may also be made on a paperless basis. In such cases, payment may be effected by the use of debit cards, credit cards, prepaid cards or other cards of a similar nature. There are also certain paperless payment services that do not require the use of any cards, and are available on electronic or online platforms accessible from computers, tablets, smartphones and other compatible devices. The most common services would be electronic fund transfers and online applications known under various names depending on the relevant service providers (e.g., mobile banking/m-banking, internet banking/i-banking or cyber banking). As no physical money is used or transferred in such transactions, the paperless payment would sometimes be referred to as 'e-money'.
Paperless payments are governed under the provisions concerning contracts and debts under the CCC, together with the Electronic Transaction Act 2001, which is the main law that regulates electronic transactions. Additionally, the Payment Systems Act 2017 (PSA) was enacted to ensure additional security and credibility for services provided by electronic means. The PSA requires service providers to notify, register, or obtain permission from the BOT before providing each type of electronic payment services.
As cash management normally involves complicated and costly processes (such as handling, transporting, sorting out damaged or soiled banknotes for destruction, and implementing security measures throughout the said processes), there have been initiatives to reduce cash usage so as to minimise processing costs and expenses. Several cashless payment methods were therefore introduced and promoted by the Thai government and authorities in recent years.
ii Recent developments
National e-Payment Master Plan – PromptPay
The PromptPay or Any ID system (PromptPay) was officially introduced for the first time in July 2016. It allows a fund transfer to be made to or from a bank account by using a Thai ID card number or mobile phone number of the account owner (instead of a bank account number). A Thai national can choose to register his or her ID card number or mobile phone number with one bank account held with any bank in Thailand.
From January 2017, corporate entities have been able to apply for PromptPay by registering its 13-digit corporate registration number with one savings account or current account held with any bank in Thailand.
PromptPay was implemented under phase 1 of the National e-Payment Master Plan initiated by the Thai government in 2015, the main objective of which is to develop an integrated e-payment infrastructure for fund transfers and payment systems between the government and the private sector. In particular, the infrastructure is intended to be used as the main (and probably the only) channel through which tax and social security disbursement payments will be made by the government to private sectors (i.e., the e-tax system and e-social welfare system, respectively). Ultimately, the government aims to transform Thailand into a 'cashless society' where purchases of goods and services are made by credit cards, electronic fund transfers, or any other methods under the Plan, in lieu of cash or cheques.
QR Code Payment System
The BOT has approved the launch of the Quick Response Code payment service (QR Code Payment) by five commercial banks in November 2017 and for three other commercial banks in December 2017. Under this system, customers are able to use mobile phone applications to scan standardised merchant QR codes for cashless purchases and payment for products and services. The payment would then be charged to the customer's credit card, savings account or e-wallet, by his or her choice for each purchase.
The Payment Systems Act 2017
The PSA was published in the government gazette on 18 October 2017 and came into effect on 16 April 2018. The PSA consolidates and reforms existing payment laws to bring them in line with international standards of governance. The PSA classifies e-payment related businesses into three categories; namely, important payment systems, regulated payment systems and regulated payment services.
The Ministry of Finance has issued two notifications,3 which set out details of specific activities that would fall under the category of the designated payment systems, and designated payment services. Moreover, the BOT has issued several notifications4 that set out the rules, procedures and conditions for the process of licensing and registration, as well as rules relating to the supervision of the operation of each type of payment system and service.5
Deposit accounts and overdrafts
Deposit accounts and overdrafts held by consumers with service providers fall within the scope of the provisions on deposit under the CCC. In particular, the CCC sets out general provisions on deposit contracts, which govern and are applicable to deposits of all kinds of property, including money; and specific rules for the deposit of money (for example, the provision prohibiting depositors from demanding the return of the deposited money before the contractually agreed time).
Financial institutions (as depositories) are required to comply with the FIA and other rules and regulations concerning deposit accounts and overdrafts as may be imposed by the BOT from time to time. For instance, they are required to apply the same interest rates for the same category or type of consumers, and announce updated terms and conditions for deposit contracts for general consumers, interest rates, discounts, fees, penalties, formulae and calculation method, in a prominent place at their head office and all branches, to inform the public and consumers who contract with or use services at such office or branch.6
Since 2008, crucial security measures have been implemented through the enactment of the Deposit Protection Agency Act 2008 (DPAA). The Deposit Protection Agency was established under the DPAA with the key objectives of providing protection for deposits of money with financial institutions, enhancing confidence and stability in the financial institution system, and managing the insured financial institutions as well as liquidating insured financial institutions whose licences have been revoked.
Pursuant to the DPAA, consumers who have deposits with a financial institution whose licence has been revoked can submit a request to the Deposit Protection Agency within a specified time frame in order to claim their deposit. To be eligible to claim their deposit in this case, the consumers must be the owners of an eligible account (i.e., a Thai baht-denominated bank account held in Thailand). Non-resident baht accounts opened for specific purposes in accordance with exchange control laws would not be deemed to be eligible bank accounts. Within 30 days of submitting the request, reimbursement of the aggregate sum of all eligible accounts will be made to the consumers; however, if the aggregate sum exceeds the limit on coverage currently in force (discussed in further detail below), reimbursement will be made up to such limit only.
ii Recent developments
The coverage limit for deposits reimbursable to consumers pursuant to the DPAA is planned to be gradually reduced from the full amount of the deposits to 1 million baht. The two Royal Decrees Prescribing the Coverage Limits of Deposits in General Cases, which were issued in 2016 and 2020 respectively, set out the annual coverage limits for 2017 to 2021, as follows:
- from 11 August 2017 to 11 August 2018, the coverage limit will be 15 million baht;
- from 11 August 2018 to 11 August 2019, the coverage limit will be 10 million baht;
- from 11 August 2019 to 11 August 2020, the coverage limit will be 5 million baht; and
- from 11 August 2020 to 11 August 2021, the coverage limit will be 5 million baht.
Revolving credit may generally be granted to individual consumers in the form of credit cards and overdraft credit, both of which are governed under the section on loans in the CCC.
The credit card business is regarded as a business involving and widely affecting consumers and the public. The BOT has therefore sought to regulate the provision of such services by implementing certain requirements, such as the requirement that consumers must have an aggregate income of at least 15,000 baht per month or 180,000 baht per year (in order to be eligible to be issued with a credit card), requirements on credit limit determination and increase, and requirements on practices such as providing information to and contacting consumers, debt collection practices and fee rates. Importantly, interest rates applied on outstanding debts and overdue payments must not exceed the maximum rates specified by the BOT.7
In addition, credit card contracts are subject to control under the CPA and the Notification of the Contract Committee Prescribing Credit Card Business as a Business Subject to Contract Control 1999 (Notification on Credit Card Business). Essentially, this means that credit card contracts are therefore required to be made in accordance with the general requirements under the CPA, and specific requirements for credit card contracts under the Notification on Credit Card Business. General requirements include requirements that the credit card contracts contain necessary contract terms without which the consumers would be unreasonably disadvantaged; and that such contracts must not contain the terms that are unfair to consumers. Specific requirements stipulate that credit card contracts are required be in the Thai language, clearly visible and legible, and that characters are to be of a size not smaller than two millimetres. In addition, the contract must contain certain significant information and conditions (for example, the condition that consumers have the right to terminate the contract for the credit card at any time, and are entitled, upon termination, to receive a refund of the service fees proportionate to the period for which the card has not been used). The requirements also prohibit contracts from containing onerous conditions, for example, stipulating that consumers must be liable for all expenses from the use of the credit card even where such expenses are incurred through no fault of the consumers.
Lastly, according to the Unfair Contract Terms Act 1997, where standard form contracts are used for credit cards, such contracts must not contain any terms that compel consumers to pay interest, a penalty, expenses or any other excessive sum, in the case of a default in payment; or provide for the charging of compound interest. Such terms would be regarded as unfair contract terms and thus only enforceable to the extent that they are deemed by a court to be fair and reasonable, taking into account the relevant circumstances.
ii Recent developments
New Notification on credit cards business
In 2020, the BOT issued a new Notification regulating the credit cards business conducted by commercial banks and non-financial institutions. Although the content of the new Notification is essentially the same as those in the old Notifications, there are certain changes, for example, a reduction in the maximum interest rate including all fees and charges payable on credit card bills.
The Payment Systems Act 2017
Credit cards businesses are categorised as regulated payment services businesses under the PSA, and would be subject to the relevant licence application process to be announced by the BOT, as discussed in Section III.ii, above.
Instalment credit granted to individual consumers would normally be categorised as secured and unsecured loans, as discussed below.
Secured loans include, for example, leasing or a financial lease, and loans granted for the purchase of assets whereby such assets are mortgaged back to creditors (e.g., houses or condominium units). This type of loan is mainly governed by the provisions in the CCC on loans, contracts and mortgages, and certain rules and regulations that may be imposed by the BOT from time to time on financial institutions to regulate their operations and to protect consumers. These include, for example, the requirement for two originals of a leasing agreement to be executed and for details of the price of the asset, the terms of the lease, the interest rate to be included in the agreement.8
Unsecured loans are monies granted to consumers based solely on the consumers' credit, without any security (referred to as clean loans), the most common examples of which are personal loans (including education or student loans). The main provisions governing unsecured loans are found in the sections concerning loans in the CCC.
The granting of personal loans, whether by the financial institutions or non-financial institutions, is specifically controlled by the BOT under the relevant Notification.9 In particular, the granting of personal loans must be in accordance with the requirements of the BOT (for example, loans must be granted to the customers who are deemed to be in a financial position to satisfy the debts, and the applicable interest rates and the aggregate amount of all interest, fees, and other penalties must not exceed the maximum rates specified by the BOT).
In addition, the business of lending to consumers by financial institutions is a controlled-contract business under the CPA and the Notification of the Contract Committee Re: the Designation of the Business of Lending by Financial Institutions to Consumers as a Business that is Subject to Contract Control 2001 (the Notification on Lending Business). As with a credit card business, personal loan contracts are required to be made in accordance with the general requirements under the CPA (see Section V.i, above), and specific requirements for personal loan contracts under the Notification on Lending Business.
Specific requirements for personal loan contracts include, for example, requirements that the contract must be in the Thai language, clearly visible and legible, and that characters be of a size not smaller than two millimetres. The content of the contracts must also contain certain significant information and conditions (for example, where the contracts impose a fine or fee on consumers for prepayment of a debt, such contracts must clearly state the rate of the fine or fee as well as the amount on which such fine or fee will be calculated), and must not contain any prohibited conditions (such as terms permitting the financial institution to terminate the contract without notifying the consumer in writing).
ii Recent developments
New Notification on personal loans
In 2020, the BOT issued a new Notification regulating the personal loans business conducted by commercial banks and non-financial institutions. Although the content of the new Notification is essentially the same as those in the old Notifications, there are additional requirements, for example, a reduction in the maximum interest rate including all fees and charges payable by consumers.
i Amendments to the guarantee and mortgage laws
Provisions concerning guarantees and mortgages under the CCC have been amended for the benefit of guarantors and mortgagors according to the Civil and Commercial Code Amendment Act (No. 20) of 2014, and the Civil and Commercial Code Amendment Act (No. 21) of 2015 (collectively, the Amended Law). The main objective behind the Amended Law is to provide better protection to guarantors and mortgagors, such as to ensure that they are afforded fair treatment by creditors. The protection is available for guarantors or mortgagors who are not the debtors themselves, but enter into the guarantee or mortgage agreements to secure the debts of the debtors.
Under the Amended Law, guarantees and mortgages can be given only for a valid debt. Where a guarantee or mortgage is granted for a debt that will be financed in the future, the relevant agreement must indicate the objective of the debt, the nature of the debt, the limitation of guaranteed amount, and the debt financing period. In addition, the Amended Law requires the consent of the guarantors or the mortgagors, as the case may be, to any extension of the debt repayment period granted by creditors to debtors (in other words, consent granted in advance in the agreement will not be enforceable).
Other significant changes concerning guarantees are (1) provisions prohibiting individual guarantors (but not juristic persons) from being liable in the same manner as joint debtors, or in the capacity of joint debtors, and (2) the provision requiring creditors to notify guarantors in writing of a debtor's default within 60 days of the default and prohibiting creditors from demanding payment of the debt during that period.
With regard to mortgages, similarly, individual mortgagors (but not juristic persons) must not be liable for any debts exceeding the price of the mortgaged property, and any agreements specified otherwise will be void. Further, in cases where the creditor wishes to enforce the mortgage, it must send a written notice to the debtor (not less than 60 days in advance) demanding the debt repayment, and another written notice to the mortgagor (within 15 days from the notice to the debtor) of its intention to enforce the mortgage.
In recent years, unfair practices most widely discussed and reported to relevant authorities would likely be inappropriate, abusive and deceptive practices of debt collection. Such issues, however, reduced after the enactment of the DCA.
i Enforcement actions
The BOT has investigated a complaint from a group of consumers alleging that their personal information, such as national identification numbers and telephone numbers, were sold by commercial banks' officers to third parties without their consent. This resulted in unanticipated contact from third parties offering products and services to them (e.g., insurance and financial services). The Thai Bankers Association has clarified that no such information had been distributed by the commercial banks as claimed. The BOT issued and circulated a document called Market Conduct to all banks and non-financial institutions to instruct, among other things, that consumers' information must be treated as confidential and not be disclosed in a manner that would cause damage to any person.10
ii Disputes before the regulator
On the basis of the records and reports of the FCC published on its official website, major complaints raised by consumers in 2019 involved issues regarding payment services and money transfers, deposit and withdrawal services (e.g., the recipient did not receive money transferred by a consumer). Financial services that were the subject of the most complaints relate to payment services, debit cards, credit cards and personal loans.11
Cross-selling is an issue of utmost concern given the gradual increase in the number of complaints. For example, certain service providers try to bundle insurance products with other products or services that customers wish to acquire, or cause misunderstanding between insurance products and savings accounts by referring to life insurance as savings, and referring to paying an insurance premium as making a deposit. The BOT has issued a letter to all branches of commercial banks instructing that insurance products must be sold in accordance with relevant rules and regulations issued by the BOT in 2008, and that certain improper behaviour must be avoided (e.g., forcing or misleading customers into buying insurance products).
According to the information revealed by the Office of the Judiciary, based on the number of the consumer cases filed with the courts in Thailand in 2019, the most common claims relate to personal loans, credit cards and general loans.12
Notably, the Supreme Court held in a decision that a supplementary credit card holder must be jointly and severally liable with the holder of the main credit card given that this was clearly provided for in the credit card agreement signed by both cardholders.13 This departs from a previous decision of the Supreme Court in 1999 in which the holder of the supplementary card was not found liable as a joint debtor, since the application form for the supplementary card did not make provision for such liability.14 In view of this, the determining factor would appear to be the content of relevant agreements, specifically whether or not the liability of the supplementary cardholder is clearly stated, and whether or not the supplementary cardholder had signed such documents. Application forms for a supplementary credit card are normally short and do not contain as many terms and conditions as the application for the main cardholder.
The National e-Payment Master Plan will continue to be one of the main projects prioritised by the Thai government for the foreseeable future. Apart from the launch of PromptPay under phase 1 of the Plan, there are other phases being concurrently implemented or planned for implementation in the near future. These include the card acceptance expansion project under phase 2, the adoption of an e-tax system under phase 3, the adoption of a government e-social welfare system under phase 4, and a project to educate the public on the e-payment system under phase 5. Consumer protection remains a significant issue of concern when implementing the National e-Payment Master Plan. Therefore, it is likely that additional specific laws or BOT announcements will be issued for the purpose of ensuring the security of transactions and governing the operations of service providers and other relevant sectors, especially as the Plan involves new technology.
1 Sui Lin Teoh and Saroj Jongsaritwang are partners at R&T Asia (Thailand) Limited.
3 Notification of the Ministry of Finance Re: Stipulation on Designated Payment Systems and Notification of the Ministry of Finance Re: Stipulation on Designated Payment Services.
4 Notifications of the BOT Nos. SorNorChor. 3/2561, SorNorChor 5/2561, SorNorChor 16/2561 and SorNorChor. 17/2561.
5 Notifications of the BOT Nos. SorNorChor. 2/2561, SorNorChor. 4/2561 and SorNorChor. 10/2561.
6 Notifications of the BOT Nos. SorNorSor. 80/2551, SorNorSor. 81/2551 and SorNorSor. 82/2551.
7 Notification of the BOT No. SorNorSor. 11/2563.
8 Notification of the BOT No. SorNorSor. 01/2551.
9 Notification of the BOT No. SorNorSor. 12/2563.
10 Letter of the BOT No. ForKorNgor. Wor. 199/2563 dated 9 September 2020.
13 Supreme Court Decision No. 21063/2556.
14 Supreme Court Decision No. 1297/2542.