Provision Statement

The following summary of the provisions of the Money Lenders Ordinance is crucial for protecting the parties entering into a loan agreement and should be read carefully. This summary is not part of the legislation. If in doubt, refer to the relevant provisions of the Money Lenders Ordinance.

Summary of Part III of the Money Lenders Ordinance – Transactions by Money Lenders

Section 18 sets out the requirements for loans made by money lenders. Every loan agreement must be in writing and signed by the borrower within 7 days after its making and before the loan is advanced. At the time of signing, a signed copy of the agreement, along with this summary, must be given to the borrower. The note must contain full details of the loan, including repayment terms, security (if any), and the interest rate. An agreement that does not comply with these requirements is unenforceable, unless the court is satisfied that it would be unfair not to enforce it.

Section 19 provides that if the borrower makes a written request and pays the prescribed fee, the money lender must provide a statement of account showing the current debt (including repayments made, amounts due or becoming due, and interest). The borrower must acknowledge receipt by signing a copy of the statement and returning it to the lender, who must keep it for the duration of the agreement. Failure to comply is an offense. The borrower may also request copies of loan-related documents (but not more than once a month). If the lender fails to comply without reasonable excuse, no interest is chargeable during the period of non-compliance.

Section 20 states that unless the guarantor is also the borrower, the lender must provide the guarantor with a signed copy of the agreement, the guarantee document (if any), and a statement of the total amount payable within 7 days of the agreement. The guarantor may request (once per month) a statement of payments made and outstanding. If the lender fails to comply without reasonable excuse, the guarantee cannot be enforced during the period of non-compliance.

Section 21 allows the borrower to repay the loan early (with interest up to the repayment date) by written notice. The lender cannot charge a higher rate for early repayment. However, this does not apply if the lender is a recognized lender or member of an approved association under Section 33A(4) of the Ordinance.

Section 22 declares that any loan agreement providing for:

Compound interest,
Prohibition of repayment by instalments, or
Higher interest on overdue amounts (except for simple interest on unpaid principal and interest, not exceeding the original rate),
is illegal. However, the court may validate such an agreement (fully or partially) if it would be unfair not to enforce it.

Section 23 states that if a lender was unlicensed when making the loan or accepting a guarantee, the agreement or guarantee is unenforceable, unless the court deems it unfair and allows enforcement (fully or partially).

Summary of Part IV of the Money Lenders Ordinance – Excessive Interest Rates

Section 24 sets the maximum effective interest rate for any loan at 48% per annum (calculated under Schedule 2 of the Ordinance). Any agreement stipulating a higher rate is unenforceable, and the lender may be prosecuted. This cap may be amended by the Legislative Council but does not affect existing agreements. This section does not apply to loans made to companies with a paid-up capital of at least HK$1,000,000.

Section 25 allows the court, in proceedings to enforce a loan or guarantee (or upon application by the borrower/guarantor), to review the agreement’s terms. If the terms are harsh/unfair or the effective interest rate exceeds 36% p.a. (or another rate set by the Legislative Council), the court may amend the terms to ensure fairness. This section does not apply to loans made to companies with a paid-up capital of at least HK$1,000,000.