Introduction
In recent years, there have been an increasing number of police reports from members of the public in Hong Kong who suspected that they had fallen prey to scams relating to the money lending services of financial intermediaries.
Financial intermediaries or middle man (each a “Third Party”) are not money lenders themselves but operate as a link or introducer between the lenders and borrowers.
They use deceptive means to induce borrowers who cannot apply for bank loans directly due to poor finances or bad credit records to engage their services to arrange loans with money lenders.
They charge extremely very high handling fees and interest in the process which fees are often payable once the loan is approved and made.
With effect from 1 December 2016, the Hong Kong government introduced various additional conditions on licensed money lenders in order to prevent the financial intermediaries from charging borrowers separate fees; to ensure better protection of privacy of borrowers and to enhance transparency and disclosure amongst the licensed money lenders, Third Party and each borrower.
Additional Licensing Conditions
Some of the additional licensing conditions are:
- Make inquiry about any intermediaries and ask for particulars of the intermediaries
A money lender, before entering into any loan agreement, shall ask the intending borrower to state whether he has entered into or signed any third party agreement with a Third Party in relation to the application of a loan (other than an agreement with solicitors instructed by the borrower for legal services). If the intending borrower’s reply is in the affirmative, the money lender must:
- obtain the name and address of the Third Party;
- state in writing in the loan agreement the name and address of the Third Party and whether the money lender is in any way related to the Third Party and if so, the nature of such relationship; and
- request for a copy of the third party agreement between the borrower and Third Party and attach such third party agreement to the loan agreement.
- To obtain confirmation from intermediaries and duty to explain to borrowers
The money lender must further seek written confirmation from the Third Party that it has not received any benefits from the intending borrower in relation to the procuring, negotiation, obtaining or application of a loan or guaranteeing or securing the repayment of the loan. The money lender is also required, before entering into any loan agreement, to explain to the borrower of all the terms of the loan agreement, in particular (a) the interest rate per annum and the total amount of interest payable; (b) the periodic and total repayment amounts; and (c) the consequences for any default in repayment (e.g. taking possession of the security involved if any or the right to demand immediate payment). Written, video or audio records of the explanation have to be kept to show compliance of this condition.
- Express prohibition
The money lender shall not knowingly allow or permit any person, whether the money lender, or his partner, employer, employee, principal or agent or any person acting for him or any appointed third party, to charge, recover, demand or receive any fees, charges, reward or consideration, however named, from any borrower or intending borrower for or in relation to the procuring, negotiation, obtaining or application of a loan or guaranteeing or securing the repayment of the loan.
- Registration obligations
Money lender must provide to the Hong Kong Police and the Registrar of Money Lenders the name, address and identification details of the appointed Third Party and the Third Party will only be regarded as an appointed Third Party after its name and address are registered with the Registrar of Money Lenders.
- Personal data obligations
Money lender shall comply with the provisions of the Personal Data (Privacy) Ordinance when obtaining, collecting or using personal data for the purpose of or in relation to the money lender’s business.
- Risk warning statement
All money lenders are now required to include the following risk warning statement in all of their advertisements in relation to their money lending business, whether in textual, audio or visual form :
“Warning : You have to repay your loans. Don’t pay any intermediaries.”
Conclusion
By virtue of the new more stringent licensing conditions imposed on all money lenders, the sector is now expected to issue new guidelines on their operation. Whilst some argued that the new rules are targeting at the money lenders rather than revamping the lending regulations as a whole, these new rules should be the most effective and fastest way to deter deceptive activities of the intermediaries without the long drawn process of legal reform.
Ultimately, the best safeguard is for the borrowers to always read the contents and details of the contract carefully before signing and seek legal advice whenever possible. If you have any questions relating to any banking or regulatory matters, experienced lawyers in our firm would be happy to assist you.
Angela Wang, Partner, Angela Wang & Co
