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High Court says usurious loans cannot be recovered

15 April 2016

By Daisy CL Mandap

In a landmark ruling that deals a blow to the rampant illegal money lending among foreign domestic workers in Hong Kong, the High Court has reiterated that usurious loans are not recoverable.
That means, anyone who lends money at an agreed interest higher than the legal rate of 60 percent per annum cannot get legal help in recovering not just the usurious interest,  but the entire loan amount. These include the notorious “five-six” lenders, or those who demand a return of $6 for every $5 lent, and the more usual 10% gang, or those who collect a 10% monthly interest on loans.
When they lend money at a usurious rate, it is as if the transaction never happened.
This was according to a decision handed down on Jan. 11 by Judge Louis Chan.
The case first came to light as a result of a series of loan transactions between the parties in the case. Defendant Nenete M. Corriente went to the High Court on appeal, claiming that an adjudicator in the Small Claims Tribunal had erred in his calculation of the amount she owed respondent and claimant Elisa G. Morales.
It was not disputed that Corriente had borrowed $5,000 from Morales way back in October 2010. She did not repay until November 2011, when Morales started imposing a 15% monthly interest on the loan. Before this, or in August 2011, Corriente borrowed an additional $1,880. Thus, by June 2012, the total loan amount including interest had grown to $12,130.
Morales started charging a 10% monthly interest on the $12,130 from June 2012 to June 2013. The total interest alone for this period amounted to $14,400. Adding up the total amount, Morales claimed a total of $26,530 from Corriente.
Apart from this, Morales extended an interest-free loan of $2,750 at a time not indicated in the decision.
In August 2013 Corriente repaid $5,000 to Morales, but refused to acknowledge any further debt.
As a result, Morales went to the Small Claims Tribunal to claim the repayment of two loans of $26,400 and $2,750. Corriente acknowledged the smaller, but not the bigger amount.
The Tribunal’s adjudicator, Naniel WS Chan, decided in favor of Morales, but reduced the amount she could collect to $13,120, after recalculating the amount of interest at the legal rate of 60%.
On this, Judge Chan said: “This is an error of law.  I therefore set aside the adjudicator’s award and dismiss the claimant’s claim.”
In coming to his decision, the judge said, “The monthly rate of 10% far exceeded the maximum rate of 60% per annum fixed in section 24(1) of the Money Lenders Ordinance, Cap 163.”
Under this section, it is provided that “Any person (whether a money lender or not) who lends or offers to lend money at an effective rate of interest which exceeds 60 per cent per annum commits an offence.”
Further, it is stated that any agreement for the repayment of any such loan shall be enforceable if the effective rate of interest exceeds that which is provided by law.
Thus, said the judge, “Since the 10% pm rate far exceeded 60% fixed in section 24(1) of the Ordinance, the loan in the sum of HK$12,130 (which included the original loans of HK$5,000 and HK$1,880 and on which the excessive rate of interest accrued) and the interest thereon at HK$14,400 are irrecoverable.
He cited a Court of Appeal decision in 1999 in which a loan amount of $1 million was declared also as “irrecoverable” on the ground that the agreement between the parties provided for an interest in excess of 60%.
The judge said the only sum recoverable was the interest-free loan of $2,750. However, he said this sum had already been fully repaid when Corriente paid $5,000 to Morales in August 2013.
He further ruled that since the entire usurious loan was irrecoverable under the law, Morales also could not appropriate or take any amount paid for it.
“In the premises, the claimant cannot seek any repayment from the defendant,” said the judge.
He also ordered that all sums paid by Corriente to the Tribunal be paid back to her, and for the court costs to be taxed or determined at a future date.
Morales as claimant and respondent appeared in person in the case, while Corriente was assisted by Legal Aid.

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