By Christopher Hooley, Partner
In recent years, many complaints have been lodged with the Hong Kong Police about “financial intermediaries” luring potential borrowers into applying for low interest loans, and then defrauding them of the money borrowed. In some instances, people have been defrauded out of millions of Hong Kong Dollars. So in an attempt to regulate these unscrupulous “financial intermediaries”, the Hong Kong Government has now introduced a number of conditions which each licensed money lender must observe.
These conditions (“Conditions”) took effect on 1st December 2016, and were introduced to:
- Increase public awareness of unscrupulous financial intermediaries; and
- Prevent those “financial intermediaries” (each a “Third Party”) from charging borrowers with separate fees; and
- Improve and enhance the transparency between the licensed money lender, any Third Party and every intended borrower.
Each person or company involved in the “procuring, negotiation, obtaining, application, guaranteeing or securing the repayment of” a loan, but who is not a solicitor instructed by the intended borrower for the sole purpose of providing legal services, nor the lender, nor the borrower of the loan, is considered to be a Third Party for the purposes of the Conditions.
The Conditions can be considered within the following four practical areas.
1. Pre contract Obligations
Every licensed money lender now has an obligation, before entering into any loan agreement with an intended borrower, to:
- Ensure that there is no Third Party involved, OR
- That the Third Party has already been successfully registered with the Registrar of Money Lenders;
- Ask the intended borrower whether he has entered into or signed any agreement with a Third Party;
- State in writing the intended borrower’s reply to (2) above;
- If the intended borrower’s reply to (2) is “Yes ”, then the licensed money lender must
- obtain the name and address of the Third Party
- state in the intended loan agreement the name and address of the Third Party, whether the licensed money lender is in any way related to the Third Party, and if so the nature of such relationship;
- request the intended borrower to provide a copy of the Third Party agreement; and
- attach such agreement to the actual loan agreement.
- Explain to the intended borrower all the terms of the loan agreement, in particular
- the interest rate per annum and total interest payable under the loan agreement;
- the repayment amounts; and
- the consequences of a default in repayment; and
- Seek confirmation in writing from the Third Party to that
- he has not and will not receive any benefit from the intended borrower for his role in the loan, and
- the Third Party has not agreed with the intended borrower that the intended borrower provide any benefit to any other party, whether for purchase of any goods or services;
and keep written, video or audio records, to prove compliance with all the above.
2. Registration Obligations
Each licensed money lender must inform the Registrar of Money Lenders about each Third Party, by submitting a “Notice of Particulars of Third Party Appointed by Licensed Money Lenders in relation to Granting of Loans” (ML-ATP 1 form), to include the name, address and identification number of each such individual or company considered as a Third Party.
Upon successful registration to the Registrar of Money Lenders, the name and address of a Third Party will appear on the Register kept by such Registrar of Money Lenders.
3. Personal Data Obligations
Each licensed money lender has an obligation to take steps to ensure that the collection and usage or disclosure of all personal data for the purposes of or in relation to the licensed money lender’s business would be in compliance with the provisions of the Personal Data (Privacy) Ordinance (Cap 486).
4. Advertising Obligations
Any money lending advertisement, whether published by a licensed money lender in his own name or through another person, in any form, must contain the following:
- The money lender’s telephone hotline for handling complaints; and
- A risk warning statement in the same language as that of the advertisement or the relevant part thereof, in specified form.
Question: Are the Conditions a stop gap measure, or a long term solution?
The Conditions suggest that there is no current intention to regulate the “financial intermediaries” themselves, as the extended protection for a borrower now comes from imposing more onerous obligations on the actual licensed money lenders themselves.
The argument that the Conditions will be a long term solution may be weak, given that no due diligence will be conducted on the “financial intermediaries” themselves, so there will still remain loopholes for unscrupulous “financial intermediaries” to take advantage of borrowers, it is merely that those financial intermediaries will be shown on a Register.
Practically, whether the Conditions work will be seen from on the number of complaints now lodged with the Hong Kong Police regarding unscrupulous “financial intermediaries”.
This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.