New rules may drive more low-income debtors in Hong Kong to unlicensed lenders

Taking loans from unregulated money lenders in Hong Kong could become a bigger problem among low-income debtors, including domestic helpers, if a government plan to regulate licensed operators overly restricts their borrowing, concern groups have warned.

The issue was raised on Tuesday, a day after the Financial Services and Treasury Bureau launched a two-month public consultation on bolstering regulations on money lending.

Among the proposed measures, the government would set an aggregate cap on unsecured personal loans based on the borrower’s monthly income. Those earning HK$5,000 (US$637) or less a month would not be allowed to borrow an amount exceeding their monthly income. The limit would be set at two months’ income for people earning between HK$5,001 and HK$10,000.

As an alternative plan, authorities could also cap the debt ratio of a borrower’s income. For those earning HK$5,000 or less, the monthly repayment should not be more than 35 per cent of their income. The rate should be lower than 40 per cent for those earning between HK$5,001 and HK$10,000.

According to the consultation paper, some low-income borrowers, such as domestic helpers, were prone to excessive borrowing.

“Some borrowers are unable to repay their debts, leading to their employers being harassed by money lenders and debt collectors, which causes a number of social problems,” the bureau said in its paper.