Members of the public have fallen prey to unscrupulous financial intermediaries and suffered heavy economic losses when they borrowed money from finance companies. Some elders even lost their life savings or self-occupied property. Such illegal scams are indeed intolerable.
Charging exorbitant fees under different pretexts
The existing legislation does not allow intermediaries to charge borrowers. However, unscrupulous intermediaries have all sorts of tricks up their sleeve, e.g. including the intermediary fee in the interest charged on the loan, or directly collecting cash from the borrower to avoid leaving a record in black and white in order to escape government investigation. Some intermediaries also concealed their relationship with money lenders by setting up professional services companies to offer ‘debt relief’ and ‘balance transfer’ services, or operated under the pretext of providing seemingly professional services such as ‘micro-bankruptcy’ or ‘debt restructuring’, so as to impose exorbitant so-called service charges on borrowers while circumventing regulation. According to police figures, intermediaries had illegally collected as much as HKD200 million intermediary fees in less than four years since 2013.
The Government has already imposed additional licensing conditions on money lenders in order to more stringently regulate intermediaries through regulating the finance companies. For example, under the new measures, the money lender must ensure that its appointed intermediary will neither charge the borrower any fees nor sign any agreement with the borrower, and all the terms of the loan agreement must be explained to the borrower, with video and sound recordings made for the whole process. Any debtor borrowing money through an intermediary must provide a copy of the intermediary agreement to the money lender. The relationship between the money lender and the intermediary will then be disclosed, and the record included in the Company Registry's Money Lenders Unit for public inspection. These measures have not only increased the liability of money lenders, but also improved the transparency of the lending process to prevent collusion between unscrupulous intermediaries and money lenders, so that the police can more easily give evidence of any wrongdoing.
Introducing a licensing regime takes time
It has been proposed to amend the Money Lenders Ordinance to extend its regulatory scope to cover companies operating money lending-related businesses and to set up a licensing regime for financial intermediaries, but it deserves further discussion. Putting aside the fact that amending the Ordinance and introducing a new licensing regime is both time-consuming and complex, the Money Lenders Ordinance already expressly bans all parties connected to money lenders and any person who works with money lenders from charging borrowers any fees, which means that the regulatory scope of the Ordinance indeed already covers intermediaries. Moreover, under the new measures, intermediaries must first be appointed by finance companies and subject to their supervision, and they can neither charge borrowers any fees nor exploit loopholes and formulate any agreements. This shows that financial intermediaries are not unregulated.
There are laws to enforce when crime is involved
As for the proposal for the Government to require applicants for a license to operate a finance company to have a certain amount of registered capital, and to incorporate operators’ conduct into the licensing and renewal considerations, it will undoubtedly make the operating environment of finance companies more hostile. However, its actual effectiveness in cracking down on unscrupulous intermediaries is questionable. On the contrary, if there are cases involving criminal elements and must be dealt with severely, law enforcement agencies may currently follow up in accordance with the Crimes Ordinance and the Theft Ordinance without resorting to such a heavy dose of medicine.
It is too early to conclude that the new measures are only palliatives. In fact, the Government has promised to review the new measures six months after their implementation. Nevertheless, the Government may consider the following recommendations to optimize the relevant measures. More important is to protect the public from falling prey to unscrupulous intermediaries.
Put under HKMA’s regulatory ambit
At present, there are several credit companies that are owned by banks which also conduct mortgage business. Theoretically, they should be subject to the HKMA’s full regulation and must comply with its guidelines on mortgage ratios and conduct repayment stress tests, etc. However, credit companies operating under a money lender license are not subject to the HKMA’s regulation. This overlapping of identities is a grey area in regulation. If the Government puts the money lending business under the HKMA’s regulation, it should help solve the problem. Another way is to emulate the insurance industry’s cooling-off period for policyholders, i.e. better protect borrowers by stipulating that loan agreements should have a cooling-off clause. This is worthy for the Government to consider and follow up.
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