Note to money lenders – Government proposes to lower usury rate caps by end of 2022
It is an offense under the Money Lenders Ordinance (Cap. 163;”MLO”) to lend or offer to lend money at an effective rate of interest in excess of 60% per annum. Moreover, a loan agreement whose effective interest rate exceeds 48% per annum is presumed to be exorbitant and the court has the power to reopen the transaction to do justice between the parties. These rates have been in effect since the MLO in its current form came into force in 1980, but the government recently submitted a resolution to the Legislative Council to lower these usurious interest rate ceilings from, respectively, 60% per annum to 48% per year. , and 48% per year to 36% per year.
The proposed reductions were introduced following consideration of changes in the interest rate environment and money lending industry in Hong Kong since, as mentioned, the current two interest limits were set in 1980 For example, the best lending rate for lenders in Hong Kong has dropped significantly from around 14% per year in 1980 to around 5% per year today. Typical annualized percentage rates charged by credit card issuing banks at the end of 2021 were mostly in the range of around 33% to 41%. The number of approved lenders has also increased rapidly over the past decade. The government therefore sought to reduce statutory interest rates in order to better protect borrowers. The impact of the current inflationary environment on these rate changes remains to be seen.
The proposal will be presented to the Legislative Council in July 2022 and, if passed, will come into force on December 30, 2022.