1. Why is the Hong Kong government proposing to enhance the regulation of licensed money lenders?
The Hong Kong government is proposing to enhance the regulation of licensed money lenders primarily to address the issue of excessive borrowing, particularly among low-income earners. Data indicates that borrowers with monthly incomes of HK$10,000 or less account for a significant portion of unsecured personal loan transactions, with a higher default rate. Foreign domestic helpers (FDHs) represent the largest occupation group in terms of loan transactions and also have the highest default rate. This excessive borrowing leads to financial problems, mental stress for borrowers, and social issues, such as employers being harassed by debt collectors when FDHs default on loans and disappear. The government aims to induce money lenders to grant loans more responsibly and better safeguard the public interest.
2. What are the key features of the existing regulatory framework for money lenders in Hong Kong?
Currently, anyone operating as a money lender in Hong Kong must obtain a license under the Money Lenders Ordinance (Cap. 163). The regulatory framework covers several aspects, including an interest rate cap (lowered from 60% to 48% in 2022, with an extortionate rate threshold of 36%), restrictions on fees and charges, and advertisement contents. Key licensing conditions require money lenders to:
• Affordability Assessment: Assess a borrower’s repayment ability for unsecured personal loans.
• Loan Agreement: Explain all terms, including interest rates, total repayment, and default consequences, to borrowers.
• Loan Referee: Obtain written consent from referees before using their information, clarifying that referees are not liable for repayment.
• Debt Collection: Only recover debts from the indebted person and prohibit harassment or unlawful practices.
• Personal Data Protection: Protect personal data from unauthorized use and comply with the Personal Data (Privacy) Ordinance.
• Money-lending Advertisements: Ensure advertisements are fair, not misleading, and include a risk warning statement (“Warning: You have to repay your loans. Don’t pay any intermediaries.”).
The regulatory regime involves the Licensing Court (granting licenses and imposing conditions), the Companies Registry (CR) Money Lenders Section (processing applications, renewals, maintaining a public register, and monitoring compliance), and the Police (enforcing the Ordinance and investigating complaints).
3. What new measures are being proposed to regulate unsecured personal loans, especially for low-income earners?
To combat excessive borrowing among low-income earners, the government proposes two main alternative measures for unsecured personal loans, drawing inspiration from Singapore’s regulations:
1. Aggregate Loan Cap: Set a maximum “aggregate loan amount” based on the borrower’s monthly income. For example:
◦ Monthly income of HK$5,000 or less: Aggregate loan amount not exceeding one month’s income.
◦ Monthly income from HK$5,001 to HK$10,000: Aggregate loan amount not exceeding two months’ income.
2. Debt Servicing Ratio (DSR) Cap: Set a maximum DSR, similar to local banking industry practices for property mortgages. This limits the total monthly repayments relative to income:
◦ Monthly income of HK$5,000 or less: DSR not exceeding 35%.
◦ Monthly income from HK$5,001 to HK$10,000: DSR not exceeding 40%.
Additionally, to prevent borrowers from disappearing after taking large loans near the end of their employment contracts, it is proposed that the repayment periods for unsecured personal loans shall not exceed the remaining term of the borrower’s employment contract.
4. How will the proposed changes strengthen protection for the public, particularly foreign domestic helper employers?
The government aims to strengthen public protection, especially for foreign domestic helper (FDH) employers who are often harassed due to their FDHs’ borrowing. Existing conditions already clarify that referees are not liable for loan repayment. New proposed measures regarding loan referees include:
• Verification of Consent: Money lenders must proactively send a letter to the referee to verify the authenticity of their written consent and only use their information after receiving a written confirmation from the referee.
• In-person Signing: Alternatively, the loan referee must sign the written consent in person at the money lender’s business premises.
• Potential Prohibition of Referees: The government is also considering a measure to completely prohibit money lenders from requesting loan referees for unsecured personal loan applications, as referees are not essential and can cause nuisance to unwitting individuals.
5. What is Credit Data Smart (CDS), and how will its use be enhanced in money lending?
Credit Data Smart (CDS) is a platform launched in April 2024, supported by the Hong Kong Monetary Authority (HKMA) and industry associations. Its purpose is to introduce more than one consumer credit reference agency, promoting market competition and enhancing the quality of consumer credit reference services. CDS aims to comprehensively record personal credit information of borrowers, enabling lending institutions to conduct more detailed risk assessments.
To enhance its use and improve the integrity of personal credit information, the government proposes:
• Mandatory Data Submission: Require all licensed money lenders to regularly submit personal credit information of their borrowers to the CDS, including loan applications, approved loan details (credit limits, outstanding amounts, repayment records), to complete the database.
• Mandatory CDS Use for Larger Lenders: Require money lenders with a certain scale of unsecured personal loan business (e.g., those with total unsecured personal loans of HK$100 million or more annually) to obtain personal credit reports from the CDS and base their affordability assessments on these reports before approving loans. This will enhance the comprehensiveness and accuracy of assessments, as these larger lenders account for a significant portion of the unsecured personal loan market.
6. What improvements are planned for the complaint handling process against money lenders?
The Companies Registry (CR) is taking steps to enhance the complaint handling process against money lenders to better safeguard public interest. These improvements include:
• Increased Transparency: Enhancing the transparency of complaint handling procedures so that complainants can better understand the CR’s methods and service pledges.
• Strengthened Communication: Improving communication and intelligence exchange between the CR and the Police.
• Supervision of Money Lenders’ Complaint Handling: Exploring ways to strengthen the system and procedures for supervising how money lenders handle complaints. This includes regularly collecting statistics on complaints received by money lenders, analyzing this information to identify those with persistently high complaint figures, and ensuring they have proper procedures in place for handling customer complaints, taking remedial actions, and ensuring all relevant staff are aware of these procedures and can provide correct information.
7. What initiatives will be undertaken for publicity and education regarding money borrowing?
The government plans to step up publicity and education efforts to promote prudent borrowing, specifically targeting the FDH community, young people, and low-income earners. These efforts will adopt a multilingual and multipronged approach. Key messages will focus on:
• Prudent Borrowing: Reminding individuals to assess the necessity of a loan and their repayment ability before borrowing, to minimize impulsive borrowing.
• Specific Advice for FDHs: Emphasizing that FDHs should not provide their employers as loan referees or their employers’ addresses as contact addresses for borrowing.
• Employer Support: Providing FDH employers with clearer channels to lodge complaints against money lenders who violate licensing conditions.
The government will collaborate with entities like the Labour Department, the Investor and Financial Education Council, and non-governmental organizations to ensure these messages are effectively conveyed.
8. Are there any proposed changes to the overall money lender regulatory regime and licensing mechanism?
Yes, to further strengthen the regulation of money lenders, the government proposes a significant enhancement to the prevailing regulatory regime, including the licensing mechanism and the Money Lenders Ordinance. The key proposal is to centralize the licensing and supervision of money lenders under a single Government department, specifically the Companies Registry (CR). This would mean the CR would be responsible for reviewing and approving applications, monitoring compliance, and prosecuting violations, aiming to enhance the effectiveness and efficiency of money lender regulation.
Furthermore, to increase deterrence and enhance transparency, the government proposes to publish details of money lenders with repeated offenses on its website for public reference. These proposed changes would require amendments to the relevant provisions of the Money Lenders Ordinance, and the government will carefully study the legislative, financial, and manpower implications.
