Can finance companies charge “fees”? Are agency fees legal?

Finance companies are regulated under the Money Lenders Ordinance. But do you know the handling charges of finance companies? Are all legitimate finance companies not allowed to charge handling fees? What are the restrictions on finance companies under the Money Lenders Ordinance? With over 2,400 successful applications for a money lender’s licence in Hong Kong as at June 2022, it seems important to know about finance companies and the Money Lenders Ordinance, both for those who wish to apply for a licence and for those who wish to use lending services.

Intermediary fees for finance companies are not legal
The now well-known “Advice: Borrow and repay, broker and pay” states that finance companies cannot charge any brokerage fees for providing lending services.

“A licensed money lender should not grant a loan to a proposed borrower if the loan involves an appointed third party whose particulars are not yet entered in the register kept by the Registrar of Money Lenders”.

The Money Lenders Ordinance was also amended in 2016 to combat unscrupulous intermediaries and once a finance company appoints a third party, it must be a “list of third parties appointed by a licensed money lender for the purpose of granting a loan” on the Companies Registry’s website.

Can finance companies charge “fees”?
The Money Lenders Ordinance regulates the money lender business of finance companies, including the display of their loan advertisements, the ceiling on the effective annual interest rate, recovery methods, repayment and early repayment arrangements, etc. If a money lender contravenes the Ordinance, there are corresponding penalties and follow-up actions.

In particular, finance companies are theoretically not allowed to collect any fees from borrowers. However, finance companies can circumvent the Ordinance by charging other handling fees in the process.

Cash handling charges
Having said that, some finance companies may still take the risk of charging a “handling fee” in cash, which is an untraceable breach of the Money Lenders Ordinance.

Bulk interest
A finance company may increase the amount of the first month’s repayment and turn it into a handling fee for the applicant.

Loan amount discounts
Some private loans may take a discount on the amount of the loan, i.e. lending less than the full amount but requiring full repayment. For example, a loan of $100,000 may result in the borrower receiving only $80,000, but the repayment amount is not reduced. This is also a breach of the Money Lenders Ordinance.

Are there other fees for finance companies?
After all, there are some legitimate fees that finance companies can charge, including solicitors’ fees and valuation fees for mortgage loans. The borrower may also be required to pay the fees in person to the relevant entity, which may not necessarily be handled by the finance company, and the best way to protect your interests is to ask for a receipt for future proof.

The above information is for reference only. If you have any questions about taxation or accounting, it is always wise to seek advice from a professional accountant and we welcome your enquiries.