It is an offence under the Money Lenders Ordinance (Cap. 163; “MLO”) to lend or offer to lend money at an effective rate of interest which exceeds 60% per annum. Further, a loan agreement where the effective interest rate exceeds 48% per annum is presumed to be extortionate and the court has power to reopen the transaction to do justice between the parties. These rates have been in effect since the MLO in its current form originally came into force in 1980 but the Government recently submitted a resolution to the Legislative Council to lower these usury interest rate caps from, respectively, 60% per annum to 48% per annum, and 48% per annum to 36% per annum.
The proposed reductions were introduced following consideration of the changes in the interest rate environment and money lending sector in Hong Kong since, as mentioned, the current two interest limits were set in 1980. For instance, the best lending rate for lenders in Hong Kong has significantly decreased from around 14% per annum in 1980 to around 5% per annum now. Typical annualised percentage rates charged by credit card issuing banks as at end-2021 were mostly in the range of about 33% to 41%. The number of licensed money lenders has also grown rapidly in the past decade. Therefore the Government sought to reduce the statutory interest rates in order to better protect borrowers. How the current inflationary environment will impact on these rate changes remains to be seen.
The proposal will be moved in the Legislative Council in July 2022 and, if passed, will come into force on 30 December 2022.