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LCQ10: Money Lenders Ordinance

    Following is a question by the Hon Albert Ho and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (November 22):


     Section 24 of the Money Lenders Ordinance (the Ordinance) (Cap. 163) provides that any person who lends money at an effective rate of interest which exceeds 60% per annum commits an offence.  Section 25 of the Ordinance also provides that if the effective rate of interest on a loan exceeds 48% per annum, having regard to that fact alone, the transaction concerned shall be presumed to be extortionate.  In this connection, will the Government inform this Council:

(a)  of the number of prosecutions instituted in respect of cases in which the rates of interest on loans exceeded 60% per annum, and the number of litigations concerning cases in which the rates of interest on loans exceeded 48% per annum, in each of the past five years;

(b)  of the rationale for setting the caps on loan interest rates for regulation purposes in the above provisions at 60% and 48% per annum respectively; whether it has regularly reviewed if the caps are in keeping with Hong Kong's economic, cultural and social situations, their effectiveness in combating illegal loan-sharking activities and their impact on the legal lending market; if so, of the outcome of such reviews; if not, the reasons for that; and

(c)  whether it has studied, with reference to overseas legislation, if the above caps on loan interest rates should be adjusted; if so, of the findings of the study and the relevant justifications; if not, the reasons for that?


Madam President,

(a)  Statistics on the prosecutions taken against money lending transactions at excessive interest rates under section 24 of the Money Lenders Ordinance ("MLO") (Cap. 163) in the past five years are as follows:

Calendar Year             Number of Prosecutions
-------------             ----------------------
2001                                 26
2002                                 18
2003                                 18
2004                                 28
2005                                 10

     The Police, Companies Registry or Judiciary does not keep statistics regarding court proceedings under section 25 of the MLO, which involve the reopening of money lending transactions.

(b) & (c)  The existing MLO was enacted in 1980 principally to tackle the problem of loan sharking. It provides a framework for the licensing of money lenders, the control of money lending transactions, and the prohibition of charging excessive interest rates. Sections 24 and 25 were enacted specifically to prohibit the charging of excessive interest rates on loan transactions while recognising the need of genuine commercial transactions. Section 24 provides that if any person makes a loan at an effective interest rate of more than 60% per annum, he will commit a criminal offence punishable by fine and/or imprisonment and the relevant loan agreement will also be unenforceable. Section 25 provides that in the case of a loan made by any person, where proceedings are taken for the recovery of the money lent or on the application of the debtor, the court may, if satisfied that the transaction is extortionate, reopen it and substitute just terms. A transaction where the effective interest rate is more than 48% per annum will be presumed prima facie to be extortionate. However, the court may declare that such transaction is not extortionate having regard to all the relevant circumstances of the particular case, such as prevailing interest rates, the debtor's state of health and business capacity unless the effective interest rate exceeds 60% per annum. The effective interest rates of 48% and 60% per annum in this two-tier structure for prohibiting excessive interest rates were decided by reference to prevailing reputable commercial practices in Hong Kong and the legislation in other jurisdictions, such as the United Kingdom.  

     Since the enactment of sections 24 and 25 in 1980, we have been keeping a watch on how these provisions operate such as their effectiveness in tackling the problem of loan sharking and their impact on genuine commercial transactions.  For example, we have amended the MLO to exclude certain corporate loans from the requirements under sections 24 and 25.  We have also substantially increased the maximum punishment under section 24 from two years' imprisonment and a fine of $100,000 to 10 years' imprisonment and a fine of $5,000,000 so as to strengthen its effectiveness against loan sharking activities.  

     From the law enforcement point of view, section 24 is generally an effective tool in curbing the loan sharking activities in Hong Kong.  We will continue to keep sections 24 and 25 under review in the light of Hong Kong's situation, such as the problem of loan sharking and the need of genuine commercial transactions, as well as the legislation in other relevant jurisdictions, where appropriate.  Should the situation warrant, we will also consider the need to suitably amend these provisions as necessary to ensure that they continue to meet the needs of our community.

Ends/Wednesday, November 22, 2006
Issued at HKT 12:00