The Consumer Council has expressed serious concern over the improper practices of some operators in providing loan intermediary services.
Consumer complaints concerning personal loans have escalated by 26% to 92 cases last year involving $9.18 million. In 2012 there were 73 cases totaling $4.26 million. The complaints were largely about sales practices and disputes over fees and charges.
Of the 46 cases complaining against undesirable trade practices that were brought to the Council between 2011 and 2013, 16 cases (35%) involved loan intermediary companies.
Loan intermediary companies mainly target, understandably, hard-pressed consumers who have urgent borrowing needs or those with poor credit ratings, in the mistaken belief such intermediaries could get them the required loan.
A common tactic of these intermediaries was to claim "No Success, No Charge" implying that no charge would be incurred to the consumers should the transaction fail to eventually go through. Invariably they were evasive and ambiguous about such loan details as fees and charges, and about what it meant by "successful approval".
Loan intermediary companies are known to collect such payment as administrative charges and consultancy fees, payable by borrowers on top of the loan interest rates. This could result in an Annualized Percentage Rate (APR) being substantially increased - possibly even in excess of the maximum loan interest of 60% per annum which is prohibited under the Money Lenders Ordinance.
In one of the complaint cases, the complainant was promised, emphatically, "no success, no charge" in arranging for a big bank loan of $6 million. He subsequently signed a document with the "no success, no charge" assurance.
Later, when the loan intermediary company approached him on whether he would still need a loan, he declined. But the intermediary company claimed that since a financial institution had already approved the loan application, the transaction was deemed successful and therefore the complainant was obligated to pay the company a handling fee amounting to $200,000.
According to the complainant, the company filed a claim for the handling fee with the Small Claims Tribunal, which it later withdrew.
In another case, a complainant approached an accounting firm for advice on debt restructuring. The firm undertook to apply for a loan of $270,000 for her from a finance company on a "no success, no charge" basis, which was, however, turned down.
But promptly she was recommended to apply for bankruptcy, which entailed an assessment fee of $23,000. After careful deliberation, she decided not to pursue the bankruptcy advice but the firm sent her a SMS text message demanding for payment of $6,000 for services rendered.
In following up the complaint, the Council was informed by the complainant that the case had been successfully resolved.
In telemarketing calls to consumers, loan intermediary companies often claim they have access to banks or money lenders, in order to gain the confidence of potential borrowers. Consumers, however, have no way of ascertaining the veracity of such claim. Any person acting in collusion with money lenders or commissioned by them could be in contravention of section 29 (10) of the Money Lenders Ordinance if he/she demands or receives any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof commits an offence.
Consumers are therefore strongly urged to weigh the risks and benefits of borrowing a loan through an intermediary company, and to apply for a loan directly from an authorized institution or licensed money lender.
Shop around and compare the loan interest rates by always using APR. To assist consumers, the Council has conducted a survey on 24 personal loan schemes with fixed payments by 17 banks and/or its subsidiaries last month. The survey revealed a broad range of APRs charges from 2.61% to 17.64%.
The attention of consumers is especially drawn to late payment interest which could substantially increase the financing cost. Most of the loan schemes (14) charged a late payment interest at a monthly flat rate of 2.25% to 5% of the outstanding loan on a daily/monthly basis plus additional handling charges of $100 to $500.
7 other plans charged only a late payment interest on the outstanding loan at the monthly rate of 3% to 5% on a daily/monthly basis with the lower limits set at $100 to $500.
The early repayment charges, on the other hand, were found to vary between 1% and 4% of the original loan amount or outstanding amount.
Lastly, whenever possible, consumers are advised to deal directly with authorized money lenders, which offer a variety of personal loans, with different interest rates, to suit your needs, for instance, some loans are designed to cover your credit card debts, and other purposes such as marriage, education, childbirth, etc.
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- 2014.03.17