Further Strengthening the Regulation of Lenders, Hong Kong Treasury Bureau Proposes Six Key Measures

In recent years, the bond market in Hong Kong has developed rapidly, with bond issuers providing a convenient loan approval process, making borrowing very convenient. Some borrowers, especially low-income individuals, have not fully assessed their repayment ability, leading to excessive borrowing and causing negative impacts on themselves, their families, and the overall society. Therefore, the Hong Kong government suggests taking appropriate measures to strengthen regulation of bond issuers while ensuring that inclusive finance can serve the public. 1. Strengthening regulation of unsecured personal loans The Hong Kong Treasury Department suggests strengthening regulation of unsecured personal loans approved by bond issuers, proposing two options for public consultation: establishing a cumulative loan limit based on the borrower's monthly income or setting a limit based on the repayment-to-income ratio. Additionally, in cases where borrowers disappear after obtaining large loans from bond issuers just before their employment contracts end, the Hong Kong Treasury Department suggests that the repayment period for unsecured personal loans should not exceed the remaining duration of the borrower's employment contract. 2. Enhancing protection of public rights Currently, borrowers may provide loan advisors when applying for loans. Loan advisors are only responsible for providing information about the prospective borrower's loan application and do not have any responsibility for loan repayment. To address cases where employers are harassed due to their foreign domestic workers borrowing money, the Hong Kong Treasury Department proposes three feasible options: - Requiring bond issuers to proactively verify the accuracy of loan advisors' information upon receiving written consent from them. - Requiring loan advisors to sign written consent at the locations where bond issuers conduct business. - Prohibiting bond issuers from requesting borrowers to provide loan advisors when applying for unsecured personal loans. 3. Enhancing assessment of borrowers' repayment capacity The government has been encouraging the lending industry to actively participate in the Credit Reference Agency (CRA) and assist lending institutions in conducting detailed risk assessments before approving loan applications. To further enhance the completeness of personal credit data in CRA, the Hong Kong Treasury Department suggests requiring all bond issuers to regularly provide their borrowers' personal credit data to CRA. Additionally, the Hong Kong Treasury Department recommends that bond issuers who conduct a certain level of unsecured personal loan business must join CRA to obtain borrowers' personal credit reports. 4. Optimizing complaint handling The Companies Registry has been closely monitoring the overall regulation of the lending industry and compliance of bond issuers with licensing conditions. To enhance protection of public rights, the Companies Registry will increase transparency in handling complaints against bond issuers and study on strengthening oversight of the complaints handling system and procedures for bond issuers. 5. Strengthening public education and promotion The Hong Kong Treasury Department will enhance education and promotion targeting foreign domestic workers, youth, and low-income individuals to improve their understanding of borrowing and promote the importance of responsible borrowing. The department will emphasize to foreign domestic workers not to provide their employers as loan advisors to bond issuers without their consent or use their employer's address as the borrower's contact address. The Hong Kong Treasury Department will also focus on educating youth and low-income individuals on prudent financial management, considering the necessity and their repayment capacity before borrowing to reduce impulsive borrowing. 6. Optimizing regulation of bond issuers To further strengthen regulation of bond issuers, the Hong Kong Treasury Department suggests optimizing the existing regulatory system, including the licensing mechanism and the Money Lenders Ordinance. The department also proposes publishing details of repeat offenders among bond issuers on the government website to enhance deterrence and transparency.