Regulation of money lenders

17 November 2020, Banking & Finance, Newsletter by Bonnie Wong, Simon Deane

At the meeting of the Panel on Financial Affairs in the Legislative Council on 17 October 2019, Hon Alice MAK suggested inviting the Consumer Council to brief the Panel on the findings and recommendations set out in its report entitled "Money Lending – Reforming Law and Trade Practices for Consumer Protection" (“ML Report”). It was suggested that the Government should update the Panel on its measures to tackle money lending-related malpractices, including whether and how the Money Lenders Ordinance should be amended in view of the recommendations made by the Consumer Council in the ML Report.

The Consumer Council set out its four major recommendations in the ML Report as follows:

1. 

Strengthen consumer education and the provision of advisory services on debt management and alternatives for credit provision to consumers

2. 

Amendments to Existing Legislation

(i) 

The regulatory function of the three separate bodies governing money lenders (the Licensing Court, the Registrar of Money Lenders, the Commissioner of Police) should be consolidated into an industry-specific regulator (“Sector Specific Regulator”)

(ii) 

To ensure responsible lending, money lenders should be obliged to conduct prudent credit assessments following guidelines by the Sector Specific Regulator on how various obligations should be discharged before granting a loan

(iii) 

Adjust the Interest Cap to a maximum of 48%

a.          A 2 tiered interest cap has remained at 60% and 48% since 1980.  A universal cap is adopted in other jurisdictions with no differentiation between secured and unsecured loans

b.          Maximum rate of 48% seems more appropriate

(iv) 

Additional requirements on advertising practices

3. 

Empower the Sector Specific Regulator to: strengthen the vetting process of licence applications and introduce a fit and proper criteria; laydown guidelines for prudent credit assessment; enhance enforcement with tools such as public reprimand, enforcement notices, pecuniary penalty, ban from engaging in money lending business, remediation orders, disciplinary actions etc.; set up a department to handle complaints.

4. 

Improve market transparency: the Sector Specific Regulator should be empowered to collect loan profiles and statistics from money lenders on a systematic and regular basis, such as total amount of new loans, outstanding loans, average tenor, general demographics of borrowers, arrears and default rate; and to publish these statistics regularly. 

For more details on the Consumer Council’s recommendations, please refer to Consumer Council’s Report.