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The Financial Services Branch of the Financial Services and the Treasury Bureau (the “FSB”) issued a letter on 1 April 2021 to all licensed money lenders setting out the Government’s proposal to revise the statutory interest rate cap and extortionate rate for money lending stipulated in the Money Lenders Ordinance (Cap. 163) (“MLO”).
Currently, (i) any person who lends or offers to lend money at an effective rate of interest which exceeds 60% per annum (the “interest rate cap”) commits an offence and (ii) any loan in respect of which the effective rate of interest exceeds 48% per annum (the “extortionate rate”) shall be presumed to be extortionate. As the MLO definition of interest is extremely wide (generally speaking it covers all payments related to a loan except principal), some lenders have inadvertently breached these limits when fees and other costs and expenses are included.
The Government has come to the view that (i) the interest rate cap should be lowered to 48% per annum and (ii) the extortionate rate should be lowered to 36% per annum, after examining the prevailing interest rates of the local money lending sector and relevant practices in comparable jurisdictions and considering the community’s view on the issue.
In the coming months, the FSB will consult the Legislative Council on the proposal and take forward the necessary legislative work to effect the change. All licensed money lenders are invited to give their views during the process.
This is an interesting development which, notwithstanding that the letter says the Government took into account community views on the issue, has come “out of the blue” with, so far as we are aware, little or no warning. These rates will not only apply to licensed money lenders but to all sectors of the financial industry apart from authorised institutions under the Banking Ordinance (Cap. 155). That said, even licensed retail banks are encouraged by the Hong Kong Monetary Authority to follow the MLO’s interest rate limits – see Section 12.3 of the Hong Kong Association of Banks Code of Banking Practice.
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