Introduction
Regarding standard forms or boilerplate contracts, one common concern is that the form is one-sided in favour of its drafter (in the case of consumer transactions, businesses).Footnote 1 In some jurisdictions, one legal mechanism is to control unfair terms in boilerplate consumer contracts.Footnote 2 Taiwan offers another approach by providing government-issued templates for consumer contracts.Footnote 3 These templates are expected to unify the contractual terms used within the same industry and for the same kind of transaction. In other words, Taiwan’s approach is to regulate standard forms through standard contractual templates without passing laws through the formal legislative process or relying on courts to assess the fairness of terms on a case-by-case basis. The article’s key question is how market participants respond to government-issued templates since their behaviour ultimately determines the effectiveness of Taiwan’s approach.
It is not unusual for contractual templates to be developed by market participants or industry associations to standardise the terms of contracts used in commercial contexts. For instance, the Master Agreement published by the International Derivatives and Swaps Association (ISDA)Footnote 4 provides the basis for documentation of transactions worth trillions annually. Similarly, the Loan Market Association, another trade body, publishes a set of documents and guidelines for various types of loan agreements.Footnote 5 However, these templates are created from the bottom up. The ISDA Master Agreement is published by a trade body representing the global derivatives industry. Members of a trade association are typically firms in the same business sector, and these firms may participate in the creation of the templates.Footnote 6 If this is the case, such templates generally should reflect the needs of businesses in the market. Whether the terms are fair, however, is a separate issue.
By contrast, Taiwan adopts a top-down approach whereby government agencies issue templates for standard form contracts for consumer transactions in the sectors they regulate. It is difficult to assess the extent to which these agencies take the industry’s interests into account, but it is clear that consumer protection and the public interest play a role in the making of contractual templates. As the main purpose of government-issued templates is to protect consumers from unfair contract terms, they are expected to favour consumers or at least reflect a more neutral balance.
The effectiveness of Taiwan’s approach depends on the stickiness of these templates. Since the templates are issued by the government, there is an implicit expectation that businesses adopt them. However, as will be discussed below, the use of these templates is not mandatory and has no legally binding effect.Footnote 7 Without a clear legal mandate and consequences for breach, businesses have some leeway to accept and adapt template terms to suit their needs. Nonetheless, government-issued templates may affect the functioning of the market, potentially resulting in a one-size-fits-all situation for businesses operating in the same industry when drafting contracts with consumers. In addition, it is questionable whether the templates’ terms are fair to the parties (consumers and businesses) and economically efficient.
The purpose of this article is to examine Taiwan’s approach to government-issued contractual templates for consumer transactions. It excludes templates developed by trade associations or similar organisations mentioned above. This article focuses on how market participants respond to such templates, drawing on a limited sample of user agreements from electronic payment service providers (PSPs). It considers factors that may affect a market participant’s choice to use a government-issued template. It does so by examining user agreements issued by PSPs. It contrasts agreements from two types of electronic PSPs – namely, electronic payment institutions (which are more highly regulated) and so-called third-party payment services providers (which are less regulated)Footnote 8 – to examine the stickiness of contractual templates. The findings offer insight into the functioning and effectiveness of government-issued templates in Taiwan’s dynamic retail market.
The structure of this article is as follows. The second section introduces Taiwan’s approach to regulating boilerplates in consumer transactions through government-issued templates and discusses the various factors that potentially influence businesses’ choice to adopt, adapt, or reject a government-issued template. The third section presents a case study comparing user agreements from different types of PSPs, each governed by different versions of contractual templates issued by separate government agencies. The fourth section offers some reflections on the implications of Taiwan’s approach. The fifth section concludes this article.
Government-issued contractual templates and behavioural choices of businesses
This section first introduces the phenomenon of using contractual templates to regulate standard consumer contracts in Taiwan, including their legal underpinnings and effects. It then discusses reasons that influence how market participants respond to government-issued contractual templates.
The Rise of Government-issued Templates in Taiwan
From 1999 until the end of 2022, the Taiwanese government has issued a total of 97 different templates for standard form contracts across various sectors, according to information stated on the website of the Executive Yuan.Footnote 9 More than 80% of these templates were published in or after 2007. Although spread out over time, there was a surge in templates issued in 2007 (thirteen templates), 2014 (thirteen templates), and 2019 (ten templates). A recent example (and perhaps also one of the most absurd) illustrating the broad reach of such templates involves a contractual template created for agreements between professional basketball teams and consumers attending games in a stadium, after many consumers paid high ticket prices to watch a former NBA star, Dwight Howard, play in a game – only for the player to sit out after the game started.Footnote 10
A government-issued template in Taiwan in effect functions as a full-length contract with all the provisions that an ordinary contract usually has, from premises and trade terms (eg, payment obligation) to governing law and dispute resolution clauses. Some details are left blank for users to fill in (eg, name of a business).Footnote 11 Any person can simply copy, paste, and make necessary amendments. Hence, a government-issued template constitutes a full-length standard form contract rather than a mere collection of boilerplate provisions.
Regarding the issuers, the Ministry of the Interior is responsible for the highest number of templates (twenty-five, 25.51%), followed by the Ministry of Transportation and Communications (twenty-four, 24.49%), the Ministry of Economic Affairs (fourteen, 14.29%), the Financial Supervisory Commission (twelve, 12.24%), the Ministry of Health and Welfare (eight, 8.16%), and the Ministry of Education (seven, 7.14%) based on the author’s own calculation of data regarding the templates at the time of writing. Although most templates were issued by the central government, the city governments of Taipei and Kaohsiung also have each issued one template for their public transportation service.Footnote 12
Government-issued contractual templates in Taiwan cover a wide range of consumer transactions. Those issued by the Ministry of the Interior include transactions related to real estate or apartments (eg, sale of real property, lease of apartments, indoor renovation, and security services for condominiums), immigration, marriage services, long-term care, and funeral-related services. Templates issued by the Ministry of Transportation and Communications mostly relate to various forms of vehicles, public transport, and tourism. For financial services, the financial regulator has issued templates related to payment services (eg, for stored value cards and e-wallets), credit cards, car loans, and some insurance products (eg, motor insurance and traditional life policies). Templates issued by the Ministry of Education cover contracts such as those with gyms, short-term tuition schools, golf club memberships, and post-school childcare services.
In short, since 1999, various government agencies have issued a number of templates for standard forms to be used as the basis for consumer contracts covering a wide range of transactions in people’s daily lives. This widespread adoption suggests that government-issued standard form templates have a significant impact on contracting practices in the retail market.
Legal Underpinnings and Effects
Interestingly, there seems to be no clear legal basis for most standard form templates, despite their widespread issuance over the past two decades. There are two potential legal bases for standard form templates. The first legal basis is the Consumer Protection Act (CPA). Article 17(1) of the CPA grants regulators in the central government the power to issue guidelines governing provisions that a standard form contract should or should not contain. The purpose of this provision is to protect the interests of consumers and ensure the fairness of boilerplate contracts. Based on this authorisation, the government has issued a number of guidelines on ‘mandatory or prohibitory provisions of standard contracts’ across various sectors. These guidelines specify terms that must be included or excluded in standard forms.Footnote 13 Typical guidelines contain two parts: First, provisions that a standard form must include (or that are otherwise deemed to be part of a consumer contract)Footnote 14, drafted in the style of contractual terms. In contrast with a full contractual template, a guideline represents a collection of mandatory boilerplate terms. Second, they offer some guidance on prohibited clauses (eg, no waiver of certain rights) that firms are expected to avoid. If a standard form contains a provision designated as prohibitory under such a guideline, the provision is rendered void.Footnote 15 As of March 2024, 84 such guidelines had been issued by the government, fewer than the number of contractual templates.Footnote 16
However, the CPA does not expressly authorise any government agency to issue a ‘template’ for standard form contracts, even though the internal bylaws of the Consumer Protection Committee (CPC) state that the Committee may review and consult on standard form templates.Footnote 17 Therefore, some argue that government-issued templates do not have an effect as ‘law’ but, rather, are administrative instructions grounded in general principles of administrative law.Footnote 18 These templates primarily serve educational or guiding purposes, and should not be considered binding.Footnote 19 Courts also seem to accept this view.Footnote 20
There is a lack of research and official explanation on how the government initially developed the idea of issuing contractual templates, and what triggered government agencies’ interests in publishing contractual templates over the past two decades. Nor has there been any significant debate in Taiwan about the merits of government-issued templates for consumer transactions, aside from discussions concerning their legal effect.Footnote 21 Nevertheless, by 2002, the bylaws governing the establishment of the CPC already stated that the CPC’s mission includes reviewing contractual templates.Footnote 22 Therefore, the question of how the Taiwanese government came to embrace contractual templates as a tool to protect consumers remains open for future research.
The second legal basis stems from special legislation enacted in the past 20 years that specifically allow regulators to issue templates for standard forms. For instance, Article 75(2) of the National Health Insurance Act grants the Ministry of Health and Welfare (MHW) the power to publish templates for standard form contracts between medical institutions and pharmaceutical companies.Footnote 23 Another example is the Long-term Care Services Act, which grants the MHW the power to issue templates for contracts between long-term care institutions and customers regarding long-term care services in care homes.Footnote 24 Similar provisions appear in several other statutes.Footnote 25 In addition, some statutes authorise self-regulatory bodies to issue templates (often subject to approval by the regulator). For example, the Real Estate Securitization Act authorises the Trust Association of the Republic of China to provide templates for contracts between trustee institutions and investors in real estate investment trusts.Footnote 26
Moreover, notably in financial regulation, sometimes the two approaches mentioned above are combined. For example, the Electronic Payment Institution Act requires that contracts between institutions and customers must not contain provisions the regulator deems inappropriate, or that offer consumers a level of protection ‘lower’ than that provided in a government-issued template.Footnote 27 However, it does not expressly authorise the financial regulator to issue such templates (eg, an e-wallet operator). Similar provisions also appear in the regulatory frameworks regarding credit cards and mutual funds.Footnote 28 In these contexts, contractual templates issued by the financial regulator function as a regulatory baseline (‘bottom-line’) for consumer protection.
It is worth noting that Taiwan’s regulatory law is not entirely consistent. While agencies are not required by law to publish draft contractual templates in advance, they are required to publish guidelines on ‘mandatory or prohibitory provisions of standard contracts’, pursuant to the CPA.Footnote 29 These guidelines regarding ‘mandatory or prohibitory provisions of standard contracts’ are similar to a contractual template in content, except that they are not structured as a full contract. In practice, government agencies publish drafts of these guidelines on the Ministry of Justice’s platform for Taiwanese laws and regulations.Footnote 30 The discrepancy between contractual templates and guidelines for mandatory and prohibitory rules may stem from the fact that only the latter has a clear legal mandate in the CPA, whereas the former lack explicit statutory support. However, both instruments pursue the same policy objective: requiring firms to include government-preferred terms and exclude those that are deemed unfair, thereby promoting consumer protection.
Regardless of their legal underpinning, government-issued contractual templates are issued with the expectation that businesses will, to some degree, adopt their terms. The next section examines the factors that may affect whether and how market participants respond to such templates.
Behavioural Choices of Market Participants
The effectiveness of Taiwan’s approach depends on how market participants respond to a template. In other words, the issue is how ‘sticky’Footnote 31 a government-issued template is in practice. If a template is not adopted by market participants, it is a sign that the template is not effective. This section considers various factors that may affect a market participant’s decision to adopt, reject or adapt a government-issued template. It does not aim to conduct a full empirical study of the effect of these factors. However, the discussion below may lay the foundation for further research into the behavioural choices surrounding government-issued templates in Taiwan.
This article hypothesizes that market participants may have three options when presented with a government-issued template: (1) adopt in full, (2) reject in full, and (3) adopt/reject in part. The first option means that a firm reproduces the template in its entirety. The second is the opposite approach. The third option means partial adoption. As mentioned above, government-issued templates are not legally binding requirements but serve as guidance for market participants. Hence, it is allowed for a business to dismiss the template entirely or adopt/reject in part, unless there are specific legal provisions that require the adoption of certain provisions. Deviation from template terms does not render a contract, or any individual clause therein, void ab initio or voidable. The key question, then, is why and to what extent businesses adopt or reject terms in a government-issued template.
There are several reasons to argue that businesses may opt to adopt most (if not all) of the provisions from a template. First, there could be expectations from consumers and politicians that businesses should adopt most parts of the templates since they are issued by the government. Consumers may also be suspicious when a business decides to deviate significantly from a contractual template.Footnote 32 In addition, a significant deviation from the templates, if made known to the market, might cause reputational loss if it is deemed to be consumer-unfriendly. Hence, arguably the market may force businesses to adopt most (if not all) parts of the templates.
Second, transaction costs may affect a business’ decision to adopt a template. It requires resources (eg, attorney expenses) to draft and revise a legally binding and enforceable contract with acceptable legal risk (eg, an unfair exclusion clause). The presence of contractual templates may reduce such costs and risks. The availability of a contractual template may save costs associated with drafting a contract from scratch. In addition, since the template is issued by the government, it should be less likely to be challenged in court, as terms in a government-issued template are likely to be deemed fair, thereby reducing potential legal costs in the future. Thus, transaction costs may also make it costly to opt out of a contractual template that is set to be the default rule.Footnote 33 Following this argument, businesses with fewer resources to absorb transaction costs associated with contract drafting may be more likely to adopt a government-issued template. However, the extent to which transaction costs may affect market participants’ choice depends on how substantial the transaction costs are. For instance, businesses may adopt contractual terms from previous transactions without using terms from a template. If transaction costs are not prohibitive, this article argues that they might not be a huge factor influencing the use of a government-issued template.
Third, the relationship between a business and the government agency that regulates the industry may also affect the decision to adopt a government-issued template. In an industry where a market participant requires a special licence to operate (eg, a bank or a telecom), this article hypothesizes that a business may be more likely to voluntarily adopt a contractual template due to regulatory pressure. On the one hand, the regulator might expect firms it regulates to adopt the contractual templates that the regulator issues. On the other hand, the regulator may have other implicit regulatory tools to pressure businesses into adopting a template (eg, delaying or withholding approval unless the template is adopted) if the business operation requires prior government approval (eg, appointing a director on the board of a bank). By contrast, in an industry with a low level of government regulations, firms have more freedom to adopt, reject, or revise terms in a government-issued template without worrying about any backlash from the regulator. Hence, this article suggests that the power structure between a firm and its regulator may influence the choice to adopt a contractual template.
Further, the choice of legal instrument (eg, a template that is mandated by law) and availability of legal consequences for failure to adopt a government-issued template (eg, civil remedies or administrative penalties) may also be important considerations in a business’ decision. For instance, as mentioned earlier, a contractual template may be legally mandatory under certain circumstances in Taiwan. In this situation, a business (eg, an electronic payment institution) may face regulatory sanctions (eg, penalties or failure to maintain a valid licence) if it chooses to deviate too much from a contractual template. In contrast, if adoption is purely voluntary in nature and carries little legal consequence, we should expect to see more variance between actual contract terms and those stated in a template.
However, there are also reasons to argue that firms may deviate from a government-issued contractual template, even if they are encouraged to adopt it. Ultimately, a contractual template must serve the needs of a firm and its business. In a way, by issuing standard form templates, the government literally adopts a ‘one-size-fits-all’ approach to consumer contracts involving the same type of transaction. It is reasonable that a firm would be less willing to adopt a template if it does not align with its business operations.
Several factors could also affect the suitability of a contractual template. On the one hand, the terms in a template may be suitable for some businesses but unfit for others, since a template usually has universal application regardless of business size, standardisation, transaction location, and consumer type.Footnote 34 A firm may be less willing to adopt a template if its terms simply do not align with the business’ needs. On the other hand, in theory, a contractual template issued by the government is expected to be ‘fair’. However, whether a term is fair is relative, depending on an individual’s perspective. A consumer may deem a term fair if it is favourable to them. By contrast, a business may find the same term unreasonable. What the government deems as fair may also be seen as unfair by some businesses or some consumers. Hence, the perception of what counts as ‘fair’ may affect a firm’s decision to adopt terms included in a template.
Moreover, businesses may also compete for customers with alternative contractual terms in addition to other factors. It is arguable that some firms may seek to attract customers with more consumer-friendly terms (eg, greater tolerance for returns without reason) than those provided in the template. If so, a firm may prefer to deviate from a template where doing so enhances its competitive advantage. In contrast, Taiwan’s approach of government-issued templates may result in the unification of terms in consumer contracts within the same market sector, especially where firms are, in practice, pressured to adopt the template. This may deprive firms of the opportunity to compete for customers with alternative contractual terms, and customers of the opportunity to choose among more diverse contract terms. While this article does not pursue that argument further, the potential impact on market competition is an issue that the government needs to consider when issuing new contractual templates.
Summary
Clearly, there has been an increasing tendency for the Taiwanese government to issue contractual templates in the 21st century, despite the lack of a clear legal mandate to do so in most cases. There are arguments that businesses might voluntarily adopt the entirety or a large part of a template due to concerns about costs, reputation, and public pressure. If so, the approach taken in Taiwan could be quite sticky. However, there are also reasons to believe that firms may at least revise certain terms to their advantage if the template does not align with their business interests. Based on the discussion above, the next section presents a case study of user agreements from a selected number of electronic payment services in Taiwan.
A case study of user agreements regarding electronic payment services
This section presents a case study of government-issued standard form templates and their adoption by electronic payment service providers (PSPs). It compares how two different types of electronic PSPs, one highly regulated and one less regulated, respond to government-issued templates, based on a sample of selected PSPs in the market.Footnote 35 This article recognises that there are limitations in using the payment services sector, which is supervised by the financial regulator, to study government-issued templates. However, as discussed in the next section, the structure of Taiwan’s payment services regulation offers a unique opportunity to observe variations in legal adoption. Specifically, the regulatory framework creates differential treatment between two groups of PSPs, through the use of different legal instruments (a full contractual template vs a guideline on mandatory and prohibitory clauses). This article does not claim to offer a comprehensive empirical analysis. Nor does this article claim to draw inferential conclusions from the limited case study. Instead, the purpose is to explore how market participants in the same industry may respond differently to government-issued templates when faced with varying levels of regulatory pressure and different designs of contractual terms, particularly regarding the allocation of risks due to fraud and security breaches.
Brief Overview of the Electronic Payment Services Market and Regulations in Taiwan
In terms of regulation of electronic PSPs, there is one important legal aspect that is unseen in most countries. Under Taiwanese law, there are two main types of PSPs. First, there are the so-called electronic payment institutions (EPIs). EPIs are governed by the Act Governing Electronic Payment Institutions (EPI Act), which subjects them to a licensing requirement by the Financial Supervisory Commission (FSC).Footnote 36 Second, there are the so-called third-party payment service providers (TPPSPs), which provide services similar to those of EPIs but they are exempt from the requirements of the EPI Act. To be eligible as a TPPSP (and thereby qualify for an exemption), a firm’s annual cash flow must fall below a certain threshold (currently set at NT$2 billion, or approximately US$66.67 million, per annum), and its business must not include small-sum remittances or the receipt of stored funds.Footnote 37 A TPPSP is not required to apply for a licence from the FSC. Instead, it only needs to register with the Ministry of Digital Affairs (MODA). Although this article does not assess the justification for such differential treatment, the practical result is that EPIs face higher regulatory scrutiny and compliance burdens than TPPSPs. This distinction affects both the content and form of the contract templates issued by the regulators, and provides an opportunity to observe how PSPs respond to different contractual templates within the same industry.
For EPIs, the FSC first issued a template for standard form contracts governing electronic payment services in 2015 (the EPI Template or Template), with revisions in 2018 and 2022.Footnote 38 The latest version of the template reflects legislative changes that merged electronic stored value cards with electronic payment services.Footnote 39 The EPI Template is partially mandatory due to regulatory requirements. When applying for an EPI licence, a firm must submit a copy of its user agreement for regulatory review by the FSC.Footnote 40 The EPI Act requires that such user agreements not only ‘comply with the mandatory and prohibitory provisions to be included in standard form contract for the business announced by the competent authority’, but also that ‘[t]he protections for consumer rights and interests provided in the standard contract shall not be less than those contained in template of standard form contract for electronic payment business prescribed by the competent authority.’Footnote 41 In other words, although the EPI Act falls short of explicitly requiring EPIs to adopt the government-issued template, it sets the template’s standards to be the minimum standard for consumer protection. Nevertheless, there are no further guidelines clarifying when and how a contract may be deemed to offer protection ‘less than those contained in [the EPI Templte] for electronic payment business’.Footnote 42
Unlike the FSC, the MODA has not issued a template for TPPSPs. Instead, in 2014 it issued only a guideline on mandatory and prohibitory terms (the TPPSP Guideline or Guideline) applicable to standard form contracts used by TPPSPs.Footnote 43 While the EPI Template and TPPSP Guideline share some similarities, the legal effect of the latter is significantly more limited. In principle, a TPPSP should not include prohibited clauses (eg, waiver of rights or unilateral amendment clauses) listed in the Guideline. However, TPPSPs retain broad discretion to include any terms not specifically blacklisted.
In summary, both EPIs and TPPSPs are subject to a certain degree of regulatory intervention in their contracts with customers. For EPIs, the regulator has issued a full contractual template and limited their ability to alter critical terms that may compromise customers interests. For TPPSPs, the MODA has adopted a lower-intensity regulatory approach by issuing a non-binding guideline indicating what should or should not be incorporated into customer contracts. In addition, the structure and content of terms contained in the Template and the Guideline are not designed in the same manner, as discussed in more detail below. Given the different legal instruments and degrees of regulatory pressure, one might expect EPI user agreements to exhibit less deviation from the government-issued template. At the same time, also for TPPSP, a risk allocation term discussed below can be considered a ‘mandatory term’ prescribed by the Guideline.
However, the choice of legal instrument may not significantly influence how PSPs treat risk allocation clauses discussed below, as such clauses are explicitly mandatory in both the Template and the Guideline. Hence, both EPIs and TPPSPs face some degree of regulatory pressure when it comes to the terms examined in the following two sections. While this article does not fully examine how the level of regulation may affect the adoption of a contractual template in the payment services sector, the differential treatment between EPIs and TPPSPs allows us to observe how payment services providers incorporate government-issued contract terms in practice. The next section examines terms from a sample of user agreements from both EPIs and TPPSPs to assess the stickiness of contractual templates and identify any significant deviations, particularly in relation to risk allocation for fraud and security breaches.
Risk Allocation in the Template and Guidelines
Instead of providing a full comparison of the terms found in government-issued templates and actual user agreements by EPIs and TPPSPs, this article focuses on provisions governing the allocation of losses due to fraud and security breaches related to a payment account (eg, unauthorised payments made by a person who hacks into a victim’s payment account).
Risk Allocation Mechanism for Electronic Payment Institutions
The EPI Template provides a risk allocation mechanism in cases where a payment account is hacked or subject to fraud. First, an EPI is required to notify the customer after each transaction. If the customer detects an error or irregular transaction, they must notify the EPI within a certain number of days.Footnote 44 The Template prescribes the minimum notification period to be 45 days. Once notified, the EPI is required to investigate the incident and inform the customer of its findings.Footnote 45 Second, the EPI Template imposes a duty on customers to safeguard their account information (eg, passwords, certificates etc).Footnote 46 Similarly, EPIs are obligated to maintain adequate payment service security and verify the identity of a user before logging in.Footnote 47 These requirements are intended to enhance the overall security of payment systems and accounts.
Third, in cases where there is a security breach of a customer’s payment account or stored value card, the EPI, either upon discovery or upon notice by a customer, is expected to suspend services.Footnote 48 In such cases, losses incurred before the customer gives notice to an EPI are to be borne by the EPI, unless the EPI could prove that: (1) the losses were caused by the customer’s wilful or negligent conduct, or (2) the customer failed to notify the EPI within a period (of no less than 45 days) after receiving account statement or transaction records. However, the latter exception does not apply if the customer was unable to notify the EPI (eg, due to hospitalisation from illness over an extended period) or if the EPI’s own wilful or negligent conduct contributed to the incident.Footnote 49
Risk Allocation Mechanism for Third-Party Payment Service Providers
The TPPSP Guideline on mandatory and prohibitory terms also comprises certain provisions addressing risk allocation, which firms are expected to include in their user agreements. Similar to the EPI Template, the Guideline provides that a customer should notify the TPPSP if their account is exposed to a security breach.Footnote 50 If the TPPSP learns of such an incident, it must notify the customer immediately and suspend all transactions or payment instructions.Footnote 51
Regarding risk allocation, losses occurring after a customer’s notice should be borne by the firm. However, for losses incurred before notice is given, the Guideline states that a customer may be required to share all or part of those losses (with the proportion specified in the contract)Footnote 52 in the following circumstances: (1) the customer failed to safeguard their account and password; (2) the customer disclosed account information to a third party; (3) the customer did not comply with the TPPSP’s account security protocols; or (4) the loss resulted from the customer’s wilful or gross negligent conduct.Footnote 53 The Guideline does not further specify how losses should be shared in the contract between a TPPSP and a customer, nor does it define the allocation standard to be applied where none of the above scenarios are met.
Summary
The risk allocation regimes differ between the EPI Template and the TPPSP Guideline. Under the EPI Template, the default rule is that the EPI bears the loss, even before a customer notifies the firm of any irregularity in his account, unless the EPI can demonstrate that the customer was negligent or failed to provide timely notice. In short, the EPI Template puts the burden of proof on an EPI to show that the customer was at fault. This position is clearly favourable to customers. By contrast, the TPPSP Guideline provides that a firm should bear losses after a customer’s notice of irregularity, but the Guideline does not clearly state which party should bear the losses that incurred before notice. In situations where customer fault contributes to the loss, the Guideline allows TPPSPs to determine, via contract, the extent to which customers will bear the loss. Beyond listing potential customary faults, the Guideline provides no further guidance on how to apportion liability. Implicitly, this may suggest that if the customer is not at fault, the TPPSP should bear the losses incurred prior to a customer’s notice of irregularity. However, since it is not clearly stated, the provision is open to interpretation, and the allocation of risk may vary between firms depending on how they draft their user agreements.
A Case Study of User Agreements by Electronic Payment Service Providers
This section examines the user agreements from a selected number of EPIs and TPPSPs to assess the impact of contractual templates in the regulation of electronic payment services in Taiwan. It focuses on terms related to the allocation of losses due to fraud or security breaches involving payment accounts. To clarify, this is not a comprehensive empirical study of all market participants in Taiwan, as there were at least ten licensed EPIs and over 12,000 registered TPPSPs, according to data from MOEA, in early 2023. Therefore, the discussion below represents a limited case study of selected firms operating in the market.
This study examines user agreements for eight EPIs and four TPPSPs. The EPIs include EasyCard,Footnote 54 iPass,Footnote 55 iCash,Footnote 56 JkoPay,Footnote 57 InterPay,Footnote 58 PlusPay,Footnote 59 PX Pay,Footnote 60 and GamaPay,Footnote 61 based on their user agreements available on their respective websites in February 2023. EasyCard and iPass were originally issuers of stored value cards used in the public transport systems of Taipei and Kaohsiung, respectively, before evolving into broader electronic payment services. iCash is the stored value card and e-wallet service operated by the Uni-President Enterprises group, which also owns Taiwan’s largest convenience store chain. PlusPay is run by FamilyMart, the second-largest convenience store chain in Taiwan. PX Pay is operated by PX Mart, one of the country’s largest supermarket chains. JkoPay and Gama Pay are privately owned businesses.
The TPPSPs included in this case study are Line Pay,Footnote 62 EC Pay,Footnote 63 NewebPay,Footnote 64 and PChomePay.Footnote 65 Line Pay is part of Line, the most popular messaging app in Taiwan. It is also worth noting that Line Bank, an online-only bank, is part of the same corporate group, although Line Bank and Line Pay are separate legal entities. EC Pay and NewebPay are both private independent TPPSPs not affiliated with conglomerates, financial institutions, or social media platforms. InterPay and PChomePay are both subsidiaries of PChome, one of Taiwan’s largest e-commerce platforms; InterPay is registered as an EPI, while PChomePay is classified as a TPPSP.
Observations from Agreements of Electronic Payment Institutions
Several general observations can be made. First, all firms examined include in their agreements terms that are not in the original EPI Template or TPPSP Guideline. All of them have also revised certain terms included in the Template or Guideline. All the EPIs examined have not fundamentally changed the terms set out in the EPI Template (ie, EPIs absorb customers’ losses in principle as long as a notice has been duly sent by the customer).Footnote 66 This may be explained by the fact that EPIs need to obtain and maintain a special licence from the FSC, which requires that their user agreements provide no less protection than the terms in the EPI Template. How to allocate losses in cases of fraud or security breaches related to a payment account is arguably among the most important terms for customer protection. Accordingly, it is likely that EPIs cannot simply opt out of the default mechanism established by the Template, given that the EPI Act only require that EPIs cannot offer terms with less protection than what the Template provides.Footnote 67
Second, although minor revisions are common, EPIs do not appear to deviate significantly from the Template in terms of the risk allocation framework. The Template prescribes a minimum notice period of 45 days for customers to report irregularities.Footnote 68 Clearly, a longer notice period benefits the customer, and the intent of the Template is presumably to prevent payment service providers from imposing an unreasonably short window for claims. Technically, there is no maximum notification period limit. In practice, however, all EPIs sampled specify exactly the minimum of 45 days – no more. This suggests that these firms are complying with the minimum requirement but do not see an incentive to exceed it. To be fair, a 45-day period (ie approximately six weeks) seems reasonable to both customers and EPIs, and may strike a functional balance. This may also explain why no firm has attempted to prolong the period since it may be deemed long enough (if not too long) across EPIs.
In addition to the minimum notification period, the sample-EPIs have made minor revisions to other terms, often to their own benefit. For instance, while the Template allows an EPI to notify a consumer of suspicious activity by phone or any other means agreed upon,Footnote 69 several EPIs expressly expand this to include email, text message, or even push notifications via a mobile application.Footnote 70 By expanding the agreed-upon communication channels, it makes it more convenient for EPIs to fulfil their notification obligation and may increase the likelihood that a consumer is deemed to have received notice. This, in turn, may trigger the 45-day period, thereby potentially shifting liability to the consumer.Footnote 71 Similarly, some EPIs list multiple communication methods that a consumer can use to report irregularities. While more ways to communicate with an EPI appear consumer-friendly, it also enables EPIs to argue that a failure to use one of these channels constitutes negligence on the consumer’s part.
Some of the EPIs also impose additional obligations on consumers to protect their payment accounts. This increases the possibility that the firm can demonstrate customer negligence. For example, JkoPay warns users explicitly about the risk of losing account credentials.Footnote 72 Gama Pay requires consumers to log out of the system or close their browsers after completing a transaction, especially when using a public or shared device.Footnote 73 Assuming a consumer reads the warning, this term should not only raise their alertness but also increase the possibility of finding the consumer negligent. Further, JkoPay also states that consumers will be deemed negligent in causing losses if they fail to follow app usage instructions, delay reviewing a transaction, or suffer losses due to compromised or hacked passwords or personal devices.Footnote 74 The apparent purpose of such clauses is to expand the scope of customer fault, increasing the likelihood that the firm can avoid liability, without changing the fundamental design of the EPI Template.Footnote 75 However, as a matter of law, it is doubtful whether these terms would be enforceable in a lawsuit if challenged, since a consumer might not be legally at fault if their password was compromised by a third party through no wrongdoing of their own.
Observations from Agreement with Third-Party Payment Service Providers
How TPPSPs’ user agreements allocate risk and losses due to a security breach of an account differs from that for EPIs, reflecting the difference between the EPI Template and the TPPSP Guideline. Similar to the Template, the Guideline also requires a consumer to send a notice to inform the TPPSP about an incident of fraud or security breach.Footnote 76 However, unlike the EPI Template, the TPPSP Guideline does not prescribe any minimum notice period. From the limited sample this article examined, TPPSPs often prescribe the shortest possible notice period in their user agreements. For instance, EC Pay, NewebPay, and PChomePay all require consumers to notify the firm ‘immediately’ upon discovery or suspicion of a security breach.Footnote 77 Line Pay does not indicate any timeframe for such notice, but it adds a disclaimer that the firm neither makes an express nor implied promise of compensation for a customer’s loss and that any measures taken after notification shall not be deemed an admission of liability.Footnote 78
For the allocation of losses, the four sample-TPPSPs all agreed to absorb losses incurred after notice by a consumer, in line with the TPPSP Guideline.Footnote 79 However, for losses incurred prior to notice, Line Pay provides that a consumer should bear the losses incurred if the consumer has failed to safeguard account information, has shared login credentials with a third party, has used the firm’s services without following its security protocol, or has caused the losses intentionally or through gross negligence.Footnote 80 The agreement does not clearly state whether Line Pay would absorb losses outside of these scenarios. However, in any of the situations above, it is clear that the consumer must bear 100% of the losses incurred in the payment account. EC Pay has a provision similar to that of Line Pay, except that EC Pay expressly stipulates that losses incurred in the circumstances above shall be borne by the consumer.Footnote 81 NewebPay and PChomePay adopt the same arrangements as EC Pay.Footnote 82
These arrangements by the TPPSPs above appear to deviate from the intended spirit of the loss-sharing approach embedded in the TPPSP Guideline. The purpose of its original design seems to have been to facilitate negotiation between PSPs and consumers regarding the division of liability. It would be absurd to suggest that the drafters of the Guideline intended the allocation of losses to be 100% to the consumer and 0% for the firm. Yet in practice, this is effectively the outcome.
In a way, the common practice among the TPPSPs sampled in this article is not surprising. The outcome highlights the limitations of the TPPSP Guideline, whose drafters may not have fully anticipated how firms would respond to a non-binding regulatory framework, particularly in markets where there is little real bargaining between firms and consumers over contractual terms. In short, the TPPSP Guideline may ultimately result in outcomes that are less favourable to consumers in terms of risk allocation.
Summary
In summary, this article has examined a number of user agreements by both EPIs and TPPSPs to illustrate how payment service providers might respond to government-issued contractual templates, namely the EPI Template and TPPSP Guideline, focusing on terms allocating risk and losses due to fraud or security breaches. As discussed above, the relevant clause in the EPI Template is clearly less favourable to EPIs, which are required to absorb transaction losses that occur even before the fraud is uncovered, so long as the customer provides notice within the required timeframe. By contrast, the equivalent provision in the TPPSP Guideline is more permissive, allowing TPPSPs and consumers to agree to share losses incurred before prior to notice. Unfortunately, there is no public evidence illustrating how or why EPIs and TPPSPs draft their user agreements in a particular way, or why they choose to deviate from the standard language contained in the Template or Guideline. While the agreements examined in this article all seem to show a high degree of compliance with the Template or Guideline, most also make targeted adjustments whenever possible to favour the firm’s interests. The next section presents a reflection on Taiwan’s regulatory approach and market participants’ reactions to contractual standardisation.
Reflection on Taiwan’s approach
There are pros and cons to governments issuing standard form templates. On the positive side, the government could, in theory, protect consumers better by standardising the terms used in boilerplate contracts adopted by businesses. Instead of relying on courts to decide the fairness of standard form terms on a case-by-case basis, government-issued templates may pre-empt disputes by clarifying contractual standards and preventing unfair practices. In addition, the government could use templates to set out its normative understanding of fairness in the market. Hence, Taiwan’s approach of relying on government-issued templates could be seen as an alternative regulatory tool to govern the conduct of business entities in the interest of consumer protection. It could also be an efficient regulatory tool, as it might be less costly than going through the formal legislative or rule-making process.
Based on the study above, several observations are pertinent. First, despite not having mandatory or binding effect as legal rules, market participants largely comply with the contractual templates. As discussed, EPIs mostly follow the EPI Template, even though its risk allocation term is highly consumer-friendly. TPPSPs also generally follow the mandatory terms listed in the Guideline. In this sense, the Template and the Guideline are, in practice, sticky for payment service providers in Taiwan. This is not surprising as both EPIs and TPPSPs are under regulatory pressure to adopt certain terms. Further empirical study is needed to assess template stickiness in other less-regulated sectors.
However, this does not mean that payment service providers embrace government-issued templates or guidelines wholeheartedly. The case study has shown that firms choose positions favourable to them within the confines of contractual templates if they do not want to radically redesign certain terms. For instance, both EPIs and TPPSPs adopt the minimum notice period (45 days for EPIs; ‘immediately’ for TPPSPs). This indicates that payment service providers try to arbitrage for the most advantageous position provided by the templates.
Moreover, EPIs often attempt to increase the likelihood of finding the consumer at fault, thereby shifting liability for losses. TPPSPs, while appearing to follow the Guideline, also aim to ensure that losses incurred before notice are borne by the consumer. As TPPSPs are more lightly regulated (compared with EPIs), they seem more willing to adopt positions that serve their interests. Therefore, the case study supports the argument that the intensity of regulation may play a role in shaping firms’ contractual conduct.
The impact of arbitrage is most clearly illustrated if we compare the terms from the user agreements of Interpay and PChomePay. The former is registered as an EPI, the latter as a TPPSP, although both are owned by PChome, a major Taiwanese e-commerce platform. PChomePay’s terms are typical of TPPSP: customers bear as much loss as possible. In contrast, Interpay’s terms closely follow the EPI Template. This suggests that market participants respond to the choice of legal instruments and their legal effect, even within the same conglomerate (likely sharing the same legal counsel as well).
Second, a normative question concerns the fairness of risk allocation provisions per se. As discussed above, the EPI Template’s default rule is that EPIs must absorb losses, even those incurred before notice, unless the customer is at fault. It seems fair that EPIs (and TPPSPs) should bear losses incurred after notification of fraud or security breach, as the firm is then expected to suspend the relevant service.
The more contentious issue concerns the allocation of pre-notice losses. The TPPSP Guideline leaves this to negotiation between the firm and customer. However, given the standard-form nature of these agreements, little to no bargaining is expected. Hence, it is down to the goodwill of a TPPSP to decide the share of losses before a notice. As seen in this study, TPPSPs require customers to absorb all pre-notice losses where possible. In other words, if the purpose is to allow TPPSPs and customers to negotiate a fair way to share the losses, the Guideline certainly fails in that regard. Thus, a poor design in a contractual template may result in a harmful position for consumers.
By contrast, the design of the EPI Template forces EPIs to bear losses unless they can prove customers are at fault. It is arguable whether this is a fair arrangement. It is possible that losses occur because the customer may leak their account number or password to a third party, but it may be quite difficult for an EPI to provide evidence of willfulness or negligence. However, unless the amount of loss is very high, it is perhaps not worthwhile for an EPI to pursue legal action – and the customer is unlikely to sue either. Given that EPIs are regulated financial businesses, it is more likely that the financial regulator or ombudsman (a dispute resolution institution dedicated to financial consumer complaints) would require the EPI to compensate customers for losses incurred before notice, as per the Template. Thus, a customer may not have to file a civil lawsuit to recover their losses from an EPI, which also finds it difficult to find the real culprit from whom to recover any potential losses, thereby avoiding the need for litigation.
Therefore, a practical avenue for an EPI to avoid absorbing pre-notice losses is by demonstrating that the customer failed to act upon an account statement. This may explain why all EPIs strictly enforce the 45-day notice period and expand the ways in which customers receive irregular transactions alerts.
The design of the EPI Template also differs from the contractual template for credit cards (Credit Card Template),Footnote 83 also issued by the FSC. Similar to the EPI Template, the risk allocation mechanism in the Credit Card Template places emphasis on consumer notice (eg, notifying the bank upon loss or fraud).Footnote 84 Similar to electronic payments, the Credit Card Template also provides that the issuing bank should, in principle, absorb the losses from unauthorised use of lost credit cards after the holder notifies the bank.Footnote 85 However, unlike the EPI Template, the credit card template provides for certain exceptions. A cardholder bears losses even after notice of a lost card if the reason for unauthorised card payment is due to the cardholder intentionally or negligently giving the card or password to a third party, or because the cardholder is part of a fraudulent scheme to deceive the issuing bank.Footnote 86 By contrast, the EPI Template includes no equivalent exceptions.
For pre-notice credit card losses, the Credit Card Template requires the cardholder to bear part of the losses incurred due to unauthorised usage of their cards, but only up to NT$3,000; in this regard, the design is similar to the TPPSP Guideline but differs from the EPI Template. Further, cardholders must bear all losses if they fail to notify an incident of lost card, forget to sign on the back of a credit card, or to assist with a bank’s investigation of an incident.Footnote 87 However, some exceptions exist, eg, where unauthorised payment occurs within 24 hours of notice or the forged signature was obviously different (ie, the merchant or issuing bank should have found out a fraudulent incident easily).Footnote 88 These nuances make the Credit Card Template’s design more detailed and arguably more balanced than the EPI Template.
In short, it is obvious that the risk allocation mechanisms in the EPI Template and TPPSP Guideline differ from those of the Credit Card Template. The latter reflects a more developed and nuanced approach. Its design may be considered fairer and more balanced than the EPI Template. By contrast, the TPPSP Guideline appears overly simplistic, failing to anticipate opportunistic behaviour by lightly regulated PSPs.
One explanation may be that the credit card market has been established for over three decades, and therefore the risk allocation mechanism has been well-tested by the market and consequently seems more sustainable. Arguably, there are stronger learning and network benefits for the default risk allocation mechanism in the Credit Card Template, based on the entrenched legal development of credit cards in the past and the collective advantage shared by credit card issuers in the market.Footnote 89 By contrast, many electronic payment services are relatively new. Therefore, there may be less consensus among market participants and policymakers on a fair and efficient allocation of loss due to fraud and security breaches.
However, it is unclear why the EPI Template adopts a rather one-sided position in favour of customers. In a way, the regulator unilaterally reshapes the market through the EPI Template, potentially stifling contractual innovation. It could be argued that the FSC has simply overused its regulatory powers under the EPI Act to mandate protections that firms cannot contract out of. When the regulator is obviously preoccupied by its desire to demonstrate consumer protection, it may inadvertently create rigid, one-sided rules. Notably, the Banking Act does not contain similar provision mandating template compliance for credit card agreements, even though both EPIs and credit card issuers are regulated by the same banking regulator (ie the same Banking Bureau under the FSC).
A broader legal question is how the government should define risk-allocation rules for electronic payments. Currently, the EPI Act, the Banking Act and other laws governing payment services in Taiwan do not provide uniform, statutory rules for risk allocation of losses. Nor is it clear how Taiwan’s Civil Code may be applicable to fill in the gap. The legal framework remains underdeveloped, leaving user agreements as the primary legal instrument for defining liability in cases of fraud or securities breaches. This article observed that Taiwan’s current approach relies heavily on contractual templates and administrative guidance. If this proves insufficient, formal legislation might be considered in future. This is subject to future studies.
Finally, the discussion above raises concerns over the legitimacy of government-issued templates, especially when they are made mandatory by laws and regulations (as in the case of EPIs). When a template is mandated, it functions like a binding regulation. However, by issuing contractual templates, the government bypasses the formal legislative process to regulate the conduct of businesses in the market. Unlike formal rule-making, contractual templates are not subject to the 60-day public consultation period.Footnote 90 There are no consistent procedures or guidelines across government agencies, and no formal obligations to disclose how a draft template is developed. It is likely that the responsible agency would call meetings or opinions from academics, consumer protection groups, and industry representatives, etc. before formalising a contractual template. However, there is no public information on how the initial draft of a template is created, representativeness of those who can review a draft template (and the interests they might represent), and the actual template-making process. It is also unclear whether there is any consistent or similar template-making process among different agencies. In other words, the creation of contractual templates occurs in a black box, even twenty years after the first was issued.
The lack of public information before publishing a template, or knowledge of the government’s intention to even create a template may deprive market participants of a chance to participate in the process and the design of terms therein. It is one thing when adoption of a template is entirely voluntary, and when a firm may opt out of the template relatively easily. But once mandatory, the absence of procedural safeguards becomes a public law concern. This may also explain why some template terms may reflect an overly pro-consumer bias (as in the EPI Template) if the government is pre-occupied with consumer protection without taking into account the voices of the industry, or vice versa if regulators are captured by industry. A key lesson from this case study is that Taiwan should consider implementing due process safeguards in the template-making procedure. This may lend more justification to Taiwan’s approach of relying on government-made templates to regulate standard consumer contracts.
Concluding remarks
This study has examined the phenomenon of government-issued templates in Taiwan, which are used to regulate many contracts between merchants and consumers in the name of consumer protection. It focused on a limited case study of user agreements adopted by a selection of EPIs and TPPSPs in Taiwan.
This article has argued that Taiwan’s approach raises legitimacy concerns from a public law perspective, and that it may also undermine the Civil Code’s function in providing default rules for contractual arrangements. Through an examination of the user agreements of selected electronic payment services providers, this study found that firms largely accept the terms in government-issued templates (or guidelines), but typically make revisions that serve their own interests. In other words, market participants continue to behave in line with their own incentives, within the boundaries of relevant legal instruments even when they are forced by law to accept the template. However, as indicated above, many factors may determine whether a firm chooses to adopt a government-issued template in whole or in part a government-issued template in a given market. Outside the payment services market, firms may choose to ignore government-issued templates altogether for various reasons (eg, due to lack of regulatory pressure), or alternatively, may adopt them broadly due to other pressure (eg, the desire to reduce transaction costs). This article only offers a preliminary glimpse into the wider landscape, considering the number of templates and guidelines issued by the Taiwanese government over the years. There is a need for further empirical research on the stickiness of government-issued templates in other regulated (e.g. credit cards or housing loans) or less regulated (e.g. leasing) markets.
Furthermore, whether Taiwan’s approach is fair or efficient depends in part on whether the terms in a given template fairly balance the interests of both parties and offer appropriate incentives to nudge firms towards more consumer-friendly practices. In the case where market participants are, to some extent, compelled to adopt government-issued templates, this study finds that poorly designed terms in a contractual templates may fail to achieve any behavioural nudging effect. On the contrary, they may create incentives for firms to limit or disclaim liability whenever possible. Furthermore, from a behavioural perspective, the question of how policymakers should design default rules in contractual templates may also be worth the focus of future research if the purpose is to nudge firms to adopt terms and practices that are more beneficial to customers.
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