Under the Money Lenders Ordinance in Hong Kong, there is a maximum interest rate that money lenders can charge to loans. If the money lender charges more interest than what the law says, the interest rate is illegal, and the court may make the loan agreement invalid or ‘cancel’ the loan agreement.
There are two types of illegal interest rates: excessive and compound interest.
What is an excessive interest rate?
Every loan agreement made after 30 December 2022 must not charge interest rate more than 48% interest.
The Court in Hong Kong will assume an interest rate to be excessive (very high) if the interest rate is over 36%. However, the maximum interest that a money lender can charge is 48%, so any loan with an interest between 36-48% is valid, but the court will assume that the interest rate is excessive under section 25(3) of the Money Lenders Ordinance.
What is a compound interest?
Compound interest is when more interest is added on top of the original interest. For example:
Annie enters into a loan agreement. The agreement states that the interest on the loan is 30% per year, and that an additional 20% is added on top.
Under the Money Lenders Ordinance, compound interest is illegal. If you are entering into a loan and the interest is compound interest, you may consider making a police report.
What happens if I have entered into a loan with illegal interest rates (either excessive or compound)?
If you have entered into a loan and realised that the interest charged is too much, under the Money Lenders Ordinance, the loan is considered illegal. This means that if there is a dispute or a disagreement between yourself and the money lender, the court cannot order either party to complete the contract. The court instead, might decide to invalidate (or cancel) the agreement.
If you think your loan agreement is illegal, you may consider contacting Enrich Hong Kong, an NGO that is dedicated to helping MDWs with their finances. Find their contact in the resources below.
Helpful Tips
- Make sure that the money lender you are dealing with is licensed to give out loans. Double check the license and make sure to read the loan agreement in full. If you need help with this, contact an NGO or legal advisor.If you take out a loan, save all receipts of payments. You should keep proof of all the payments you have made. Keep both the paper receipt and take a picture. This is just in case the money lender tries to say that you have not repaid the loan.
- Gather all evidence you have and keep it properly. Make sure you keep the loan agreement properly (keep the paper safely and take photos of the whole agreement). If you later find out that the interest rate is illegal, you will need to show proof of this to the police.
- Consider making a police report if you suspect that the money lender is illegal.
- Consider suing the money lender if they keep harassing or disturbing you. The court may decide to order the money lender to compensate you (give you money) for harassing you. You should seek advice from an NGO or legal advisor first.
