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LCQ10 Money Lenders Ordinance _22

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					                                  Press release

                     LCQ10: Money Lenders Ordinance
                       Wednesday, November 22, 2006

      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):



Question:

       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?



Reply:

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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

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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.




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