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| All money lender's actions are heard at the District Court |
In a case that could have far-reaching effects on
debt-collection practices of money lenders in Hong Kong, the District Court ruled
earlier today that employers could be contacted to confirm the whereabouts of a
domestic worker who has defaulted in paying off a loan.
Judge Louise Chan made the ruling in a money lender’s
action filed by Pacific Ace Finance Ltd. against three Filipina domestic helpers
who failed to repay in full two separate loans they took out from the lending company
in 2015.
Judge Chan found that the action of a Pacific Ace
collector of going to the house of the employer of one of the defendants, Gilda
H. Delay, and afterwards, leaving a letter in their mailbox requesting the
helper to contact the money lender, did not violate the Licensing Conditions for money
lenders.
“I incline to think such arrangement was reasonable
for the Plaintiff to locate and confirm if Delay was still under the
same employment as specified in her Application Form and to make demand for repayment from Delay. I do
not consider there has been any breach of the lenders’ obligation under the Licensing
Conditions Condition 10,” said the judge.
In her decision handed down today, Judge Chan
allowed Pacific Ace’s bid to collect the unpaid amounts from two separate loans
taken out by Delay and two of her friends, plus costs. As the financing company
was represented by a lawyer, its legal costs that could be charged to the
defendants could be far more than the amount of their unpaid loans.
Delay, who was the only one present in court today
to receive the written judgment, said she would appeal.
She also vowed to pursue her opposition to Pacific
Ace’s application for the renewal of its license at the Magistrates’ level,
which she said was adjourned to a future date pending the decision on the
District Court case.
Pacific Ace’s claim was over two separate loans incurred
by the three defendants: the first was for $10,000 taken out on March 28, 2015
by Rosalina J. Villasfer with Delay as co-borrower; and the second on May 4,
2015 for $13,000 by Delay, with Andrenee Villasfer as co-borrower.
By the time the financing company filed the writ for compensation in
2018, only the first of four monthly installments amounting to $2,750 was
repaid for the first loan, which together with interest of 30% per annum, should
have amounted to $11,000.
For the second loan, which should have amounted to a
total of $14,874 ($13,000 with 28.8 % annual interest payable over six months), the amount repaid as of Jan. 17,
2018 was only $13,432.
By this time, the two Villasfers
had already gone back to the Philippines, and only Delay had remained in Hong
Kong to face the lawsuit.
Delay responded by filing a
counter-claim for $10 million in punitive damages, saying that because of the
financing company’s “unlawful debts recovery practice,” she “suffered tremendously for 6 years of
fear.” She later reduced her claim to $3 million so it still fell within the DC’s
jurisdiction.
In her defense, Delay claimed that the plaintiff had
charged excessive interest for the loans (up to 300% by her reckoning), that it
employed illegal debt collection tactics like harassment and violation of
privacy laws, and had forged documents.
She did not take the witness stand, but chose to
rely on the witness statement prepared by one Steven Tam-Ang, whose testimony
was all based on information passed on to him by Delay.
The judge dismissed Tam-Ang’s evidence as hearsay, as
he had no personal knowledge about any of the allegations made by Delay. He was
not present at the time Delay applied for the loans and/ or signed the
promissory notes, nor did he witness the alleged harassment.
On the other hand, Pacific Ace presented two witnesses
whom the judge found credible. One was Monaliza Bautista who is the company’s director
and loan approving officer and has worked with the plaintiff company for 28 years.
The other was Aldrin Samoza, who is a collection supervisor and has worked for
the company for 29 years.
Bautista told the court that “co-borrowers” act as
sureties or guarantors taken out by somebody else, and this is fully explained
to all parties concerned before a loan application is approved.
This was to dispute Delay’s claim that the plaintiff
runs a debt-trapping scam by having a principal borrower and co-borrower for
its loans. She said the co-borrower was “fake” and was made to act as a “human
form of securities” in what she called a scam.
The judge dismissed this argument, noting that most financial
institutions require borrowers to nominate a security or guarantor, especially
when borrowers could not provide any collateral for their loans.
This also does not violate the Money Lender
Regulations which prohibits only three forms or security for loans, namely the
identity card of a person, bank passbooks or photos of the borrower or surety,
or that of their family member.
Judge Chan also dismissed Delay’s allegation that
Pacific Ace had charged excessive interest for the loans, noting that the
calculations provided the borrowers had clearly indicated that an annual
interest rate of 30% was imposed on the first loan, and 28.8% on the second
loan.
At the time the loans were provided Delay and her
co-defendants, the legal interest rate was 60% although it has been reduced to
48% from Dec 30, 2022.
She
said Delay had wrongly calculated the interest for the subsequent month’s instalment
based on the remaining balance of the loan instead of the loan principal. Second,
she considered all her late repayments over more than three years as settling
the total loan amount without calculating the default interest, or what she
should have paid in excess because of her late payments.
This kind of calculation,
said the judge, is what is often called an “amortized loan” repayment, often agreed upon by a bank and a borrower, where
monthly payments chip away at the principal, as well as the accrued interest.
But according
to the judge, what the defendants had secured from Pacific Ace were “simple
fixed interest loan”, where lenders use the loan principal and the fixed interest
rate to calculate the total amount of interest to be paid over the entire instalment
period.
This
kind of loan “is commonly available among financial institutions (and certainly
legal), said the judge.
(The full judgment can be found here: https://legalref.judiciary.hk/lrs/common/ju/newjudgments.jsp
Look for case numbers DCCJ 3298/2018
& DCCJ 3299/2018 )
