Protecting the Interests of the Public by Adopting a Multi-pronged Approach to Tackling Over-borrowing at the Root
The Financial Services and the Treasury Bureau (FSTB) and the Companies
Registry (CR) have been keeping a close watch on the licensed money lending market,
with ongoing efforts to review and enhance the regulatory measures, urging
licensed money lenders (money lenders) to grant loans in a more responsible
manner and hence better safeguard the interests of the public.
In recent years, over-borrowing, particularly unsecured personal loans
involving foreign domestic helpers (FDHs) and low-income earners, has become an
issue of great concern to the community.
Quite a number of legislators
have shared their views with me on this matter.
I also published a blog post in June this year setting out measures that
emphasise a mix of regulation and education.
The FSTB is drawing up specific measures on various fronts, such as
regulating money lenders and enhancing publicity and education, with
a view to stepping up efforts to address over-borrowing and protect the interests
of the public. We intend to launch a
consultation in the first half of next year.
Some preliminary directions of our proposed measures are outlined below.
Imposing a borrowing cap
for unsecured personal loans
In 2021, we introduced a licensing
condition regarding the assessment of the borrower’s affordability. Specifically, pursuant to Licensing
Condition 15 of the Money Lenders Licence, a money lender shall, before
entering into any agreement for unsecured personal loan or before granting any
significant increase in the amount of loan under an agreement for unsecured
personal loan, undertake an assessment of the intending borrower’s or
borrower’s ability to make repayments under the loan agreement affordably and
have due regard to the outcome of the assessment in respect of affordability. In carrying out the assessment, the money
lender shall consider the intending borrower’s or borrower’s income and
expenditure, as well as his/her ability to make repayments under the loan
agreement. Other considerations may include
the amount of the loan principal, the total interest payable, the duration of
the term for repayment and the intending borrower’s current credit and
financial information etc. The money
lender must also maintain relevant records for inspection by the CR. In 2022, we lowered the statutory interest
rate cap for lending from 60% to 48% per annum, and the extortionate rate
threshold from 48% to 36% per annum.
To bolster our
efforts in tackling the problem of over-borrowing, we are looking into setting a borrowing cap for unsecured personal loans based
on the monthly income of the borrower.
For example, the amount of unsecured personal loan that
a money lender may grant shall not exceed a certain percentage of the borrower’s
monthly income if the income is below a specified level. We are currently working on the specific levels
of the monthly income and the borrowing cap.
Enhancing protection for referees
Under Licensing Condition 13 of
the Money Lenders Licence, where any referee is provided in respect of the loan
application, the money lender shall, before entering into any agreement for
loan, ask the intending borrower to provide the written consent signed by the
referee(s) confirming his/her agreement to act as referee for the intending
borrower in respect of the loan application, and attach the written consent to
the loan agreement. The same licensing condition
also specifies that a referee is a person who provides, on a voluntary basis
and upon request by the money lender, information about the intending borrower
in respect of the loan application. In
2021, the licensing condition was enhanced such that if the money lender is
informed or aware that the written consent was not signed by the referee, the
money lender shall immediately cease to use the information of the referee, with
a view to further combating the improper use of referees’ personal information.
Moreover, according to Licensing
Condition 10 of the Money Lenders Licence, the money lender and his debt
collectors shall not try to recover debts, whether directly or indirectly, from
anyone unless such person is in law indebted to him. The money lender and his debt collectors
shall not, while trying to locate the whereabouts of debtors, harass anyone nor
adopt unlawful or improper debt collection practices.
We are now working on the specific
measures to enhance protection for loan referees, such as studying the feasibility of requiring money lenders to take the
initiative to, upon receipt of a written consent of a loan referee, verify its
authenticity with the loan referee.
Enhancing the complaint handling process
The CR
has been paying close attention to the overall regulation of the money lending sector
and the money lenders’ compliance with the licensing conditions. In the light of the latest developments of the
money lending market, the CR has from time to time issued letters to money lenders,
reminding them to pay particular attention to the relevant licensing conditions
and matters. To enhance the protection
of public interest, the CR will, on the one hand, examine ways to enhance the complaint handling process and step up
communication and intelligence exchange with the Police and, on the other, explore means to strengthen the monitoring of
the complaint handling system and procedures adopted by money lenders to
ensure that complaints are properly handled.
Money lenders should strictly comply with the
licensing conditions in conducting their business. Any breach of the licensing conditions is an
offence under the Money Lenders Ordinance (Cap. 163). Upon conviction, offenders are subject to a
maximum fine of $100,000 and imprisonment for two years. In addition, if the CR or the Police considers
that a licensee has ceased to be a fit and proper person to carry on business
as a money lender, it may apply to the Licensing Court for revocation of his/her
licence. In processing an application for
renewal of a money lender’s licence, the CR and the Police will also take into
account all relevant factors, including whether the money lender has been the
subject of any complaint, warning, prosecution, etc., in deciding whether to make
an objection to the Licensing Court in respect of the licence renewal
application. Over the past five years,
the CR conducted a total of 2 173 site inspections and issued a total of
535 rectification orders and 23 warning letters to money lenders, in respect of
the irregularities identified during the inspections.
Stepping up promotional
and educational efforts
Besides,
we will step up promotional and
educational efforts targeting the FDH community, the youth and low-income earners
to enhance their understanding of money borrowing. We will adopt a multilingual and multipronged
approach to promoting the importance of prudent borrowing. We will focus on reminding the FDH community of
the need to seek prior consent from the referee to give his/her particulars for
the purpose of loan application when taking out a loan. We will also make more strenuous efforts to
provide employers of FDHs with information on the role of referees, as well as
channels to lodge complaints against money lenders in breach of licensing
conditions. In addition, we will place
great emphasis on promoting prudent financial management among young people and
low-income earners, reminding them to consider, before borrowing, the necessity
of taking out a loan and their repayment ability, so as to minimise impulsive
borrowing. We will strengthen
co-operation with the Labour Department, the Investor and Financial Education Council
and non-governmental organisations to ensure that the relevant messages are effectively
conveyed.
We
are working on the specifics of the measures and will announce the details in
due course, with a view to commencing a consultation in the first half of next
year. We believe that the concerted
efforts of the Government and the community will enable us to effectively
tackle the problem of over-borrowing and hence further safeguard public
interest.
25 November 2024