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| Finance Asst Sec Kelvin Lo explains the tighter rules that will take effect in August |
From August 1 this year, strict new laws that aim to prevent excessive borrowing by low-wage earners like foreign domestic helpers are set to take effect, a Hong Kong government official told Filipino stakeholders during a briefing on Thursday, Apr. 16 at the OFW Global Center in Admiralty.
A second round of
regulations which will take effect in June next year will see licensed money
lenders being required to join the Credit Data Smart platform, where they must submit
personal credit information of their borrowers on a regular basis.
Kelvin Lo,
principal assistant secretary at Hong Kong’s Financial Services and Treasury
Bureau said the new regulations which still need legislative approval, were
crafted after studies showed a high rate of loan defaults among those in the
low income brackets.
“We saw a lot of cases
of excessive borrowing, especially among the low wage earners,” Lo said.
An ensuing public
consultation last year which elicited around 150 submissions, including one from
the Philippine Consulate General, resulted in the drafting of laws to enhance
the regulation of money lenders.
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| Congen Israel says the stricter regulations have a big impact on majority of Filipinos in HK |
Speaking at the start of the briefing, Consul General Romulo Israel, Jr. said, "We understand the purpose and impact of these regulations because we have a large group, some 205,000 Filipinos, who work here as domestic workers."
He said it is important for the Filipino community to fully understand the new rules as they affect a big number of them here.
The first phase of the regulations will include putting a cap on loan repayments of between 35% to 40% of the monthly salary for those earning no more than $12,000 a month.
Those whose monthly
wage is below $6,000 will pay no more than 35% of their salary, while the cap
on those who make between $6,001 and $12,000 will be at 40%.
In addition, the repayment
period of unsecured personal loans cannot exceed the remaining term of the
borrower’s employment contract.
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| Graph shows how the loan limits for those earning no more than $12k a month |
However, Lo said the proposed regulations are flexible as regards this requirement. The repayment period can be adjusted accordingly if the FDH is able to show proof that the existing contract has been renewed for another two years.
Another key
measure will prohibit money lenders from asking borrowers for a loan referee
starting on August 1. This particular provision was drawn up largely in
response to employers complaining about being harassed by debt collectors after
their FDHs abscond or lose their employment after taking out a huge loan.
But it is the
stricter set of regulations that will take effect from next year that appears to
have met with stiff opposition from licensed money lenders.
A senior officer at
one of the biggest companies that extend unsecured loans said the tighter regulations
could just drive FDHs to borrow from loan sharks, miring them in bigger debt
and exposing them to a greater risk of losing their jobs.
“They are just pushing
the FDHs to go to loan sharks who lend them a small amount at exorbitant interest
rate, then harass them if they cannot repay on time,” she said.
What the government
should do is to allow the licensed money lenders to regulate themselves, as
they are the ones who stand to lose the most when a borrower defaults or
absconds, she added.
Further, she said the
tighter rules disregard the “more meaningful reason” why many helpers take out
loans, which is to use the instant cash to set up a business or build their own
homes.
