Hong Kong needs new law to combat city’s money lenders says watchdog, as aggressive sales tactics and skyrocketing interest rates see multiple bankruptcies soar
- The number of people with multiple bankruptcies is up 309 per cent in six years despite an overall fall in cases
- One debtor accumulated 37 loans totalling about HK$300,000 in the space of a year, with another racking up 120 different debts
Hong Kong’s consumer watchdog has urged the government to overhaul “obviously outdated” laws for money lenders by setting up a regulator to supervise an industry with aggressive sales tactics and skyrocketing interest rates.
The Consumer Council made the appeal on Thursday as it released the results of a study it started early last year into borrowing issues and feasible solutions.
Among problems identified were people borrowing from multiple lenders, sometimes more than 10 at a time; high interest rates of up to 60 per cent; excessive and misleading advertising; and the lack of a regulator.
In some serious cases, a debtor borrowed cash from more than 120 different lenders for an unknown amount, while a low-income, middle-aged housewife accumulated 37 loans totalling about HK$300,000 in the space of a year.
The number of cases of people with multiple bankruptcies soared from 151 in 2013 to 617 last year – a 309 per cent jump – despite an overall downward trend of bankruptcies, from 9,371 in 2013 to 7,146 in 2018.
Overspending, joblessness and excessive use of credit were cited as the three main reasons for declaring bankruptcy.
The study noted that the city’s lending market had grown rapidly over the past decade, with the number of licensed money lenders rising from 779 in 2009 to 2,260 in August this year. Total credit card advances and personal loans reached HK$673.9 billion.
“However, the existing Money Lenders Ordinance has not had any major amendments since its enactment some 40 years ago, with neither police nor the registrar having the power to make binding rules to regulate the industry,” Paul Lam Ting-kwok, the council’s chairman, said.
We are not passing judgment on the rights and wrongs of borrowing as there are positive and legitimate needs for borrowing in Hong Kong
He said sanctions such as revoking a lender’s licence were only imposed on those found breaking the law or licensing conditions, after a successful criminal conviction.
“But in the past seven years, there was only one case of revocation of the lender’s licence,” Lam said.
The council’s vice-chairman, Samuel Chan Ka-yan, pointed to a worrying trend of young people struggling to make ends meet.
The report, “Money Lending – Reforming Law and Trade Practices for Consumer Protection”, cited a survey by the Investor and Financial Education Council in 2017 on 500 young working adults aged under 30, saying more than 60 per cent had overspent and nearly one-third had debts averaging HK$37,000.
Tighter bank credit means business for money lenders
Poor debt management and inadequate knowledge about credit products and borrowing costs were found among debtors.
It also found money lenders using aggressive and misleading advertisements and sale tactics without clear information about the payment period or the interest rate.
“Such sales practices unduly influence consumers, or deliberately play down the consequences of borrowing to promote the irrational spending attitude of ‘buy first, enjoy first’,” Chan said.
Lam called on the government to amend the law, set up a regulator to oversee the industry with well-defined rules and sanctions, and to curb interest rates from the present 60 per cent cap, to 48 per cent.
“The existing regulatory framework governing money lenders in Hong Kong is obviously outdated, and falls short of international standards of other jurisdictions,” he said.
“We are not passing judgment on the rights and wrongs of borrowing as there are positive and legitimate needs for borrowing in Hong Kong … the government is obliged to overhaul and improve its regulatory regime to plug the loopholes for strengthening consumer protection and enhancing safeguards.”
The council analysed more than 300 complaint cases, interviewed three NGOs specialising in financial advisory and debt counselling services, and gauged views from various money lenders about their trade practices.
A spokesman for the Financial Services and the Treasury Bureau said they were studying the report but stressed the government had introduced stringent licensing conditions on money lenders and enhanced enforcement by police.
“The government has been closely monitoring the money lending industry … we have reviewed and strengthened the regulation of licensed money lenders in a timely manner to enhance the protection of borrowers,” he said.
The spokesman also said the bureau was going to conduct a new round of public education activities to remind people of the importance of prudent borrowing.
“In addition, we are collecting information on the personal loan business of the licensed money lenders which could facilitate our consideration as to the need to review the various aspects,” he said.
