In times of financial distress, consumers may turn to banks or other financial institutions. But if they need a large amount or have a poor credit record, their loan applications may not be approved. Borrowers who need money urgently to tide themselves over may fall prey to the scams and extortion of unscrupulous financial intermediaries. There is a complaint about being charged a steep service fee of $500,000 for a loan of $1.1million, putting a tremendous additional burden to someone who is already in financial trouble. The Consumer Council alerts consumers in need of financial assistance not to fall into credit traps.
The Council received 134 complaints against financial intermediaries, a surge of 79% over the previous year. The complaints involve mainly misrepresentation and fee disputes. Since there is usually a contract signed between the borrower and the intermediary, even if the borrower seeks assistance from the Council, the intermediary may refuse to engage in conciliation on the grounds that the borrower is bound by the contract in black and white.
The techniques commonly employed by these financial intermediaries include: recommending money lending service in a fictitious capacity as a government officer, or falsely claiming to be a professional like accountant who can help apply for loans, followed by steps to extort money from the borrowers, such as charging a steep service fee without having informed the borrowers of it.
In one case, the complainant - a public housing tenant borrowed $400,000 from a money-lending company some years ago. He received a call in April 2015 from a person purportedly worked for the Housing Department. The caller alleged that the complainant had borrowed money illegally and therefore had to submit a property risk assessment and a credit report within two weeks.
To steer clear of lawsuit, the complainant contacted a mortgage company (Company A) on the recommendation of the caller. Company A claimed that they could help the complainant apply for a loan of $600,000 at an interest rate lower than that of the loan he currently carried. It suggested him use $400,000 to repay his existing loan leaving the balance for processing the two documents required for the application. He was further suggested to take out a bridging loan of $150,000 from a money-lending company, on the grounds that the application would take three months to complete. He agreed. Upon signing the agreement, he got the sum of $150,000 in cash. However, it was soon taken away by Company A which claimed that it would be used for reimbursing the loan-application fee.
The complainant later suspected that he had been cheated. He found in his hand only a contract for the service of Company A to apply for a loan on his behalf in the consideration of $100,000 to $150,000. The complainant reported the case to the Police and sought help from the Council in a bid to get his $150,000 back. When the Council intervened, Company A refused to make refund, emphasising that the service charges had been provided in the contract. The Council advised the complainant to lodge a civil claim against Company A. As for the $600,000 loan about which Company A had initially mentioned, it ended up with nothing definite.
In another case, a complainant was seeking to have his debts restructured due to cash flow problem. Through the Internet, he found a law firm (Company B) claiming to provide such a service. When he arrived at Company B's office, he found that it was indeed an accounting firm of the same name. A staff member of the company said he could negotiate with the bank on the complainant's behalf for a reduction in the interest rate and suspension of repayment until completion of the debt restructuring. He further suggested the complainant take out a loan of $250,000 to settle all his credit card bills. He guaranteed success of the application saying that the complainant would only be charged $25,000 for the service. Verbally, he promised the complainant a cooling-off period of seven days.
Three days after the execution of the agreement, the complainant informed Company B by SMS that he wanted to cancel the application. Company B responded that although the loan application had not been completed, he still had to pay the service fee as certain services had already been rendered. Subsequently, the complainant received calls from a debt collector chasing him for the service fee. Aggrieved by Company B's request to pay for a service not used, the complaint sought assistance of the Council. He also complained that Company B had gone back on its promise about the cooling-off period. The Council advised the complainant that a verbal promise was legally binding but might be difficult to prove. At last, the complaint was referred to the Police.
In the third case, after obtaining a loan of $300,000 from a money-lender (Company F), the complainant submitted an application to Bank P for cash-out refinancing. One week later, he received a call from a person purportedly worked for Bank P, informing him that his application for mortgage refinancing had been rejected. The caller recommended an accounting firm (Company C) to him saying that it could help him re-submit his application. After discussing his situation with Company C, the complainant agreed to apply to a money-lending company for a remortgage loan and then transfer the loan to Bank P.
Company C succeeded in getting the complainant a loan of $1.1 million from Mortgage Company Z. After deducting $300,000 for settling the debt owed to Company F, the complainant should have been left with $800,000. However, Company C took $500,000 from the remaining balance as a service fee. Furthermore, Company C did not keep its promise to transfer the loan to Bank P.
The complainant said he had not been told about the charging of service fee in the sum of $500,000. He criticised Company C for failing to honour its promise to transfer $300,000 to Bank P. He demanded a refund of the service fee. The Council, upon receipt of his complaint, conciliated between the two parties. Company C insisted that the service fees were set out in the contract and refused to make refund. The Council suggested the complainant pursue his claim through legal proceedings.
Consumers are advised of the following if they need to take out a loan:
- Be very wary of phone calls from unidentified sources. Do not trust the caller even if they know your personal particulars and financial situation, or claim to represent a government department or organisation;
- The Monetary Authority requires retail bank staff to provide their names in full, their direct phone line or their staff number when conducting telemarketing. Consumers can verify the caller’s identity via the website of the bank or Monetary Authority;
- The Monetary Authority has asked the banks to stop promoting personal loans, credit card loans, etc. through intermediaries; callers who claim they can help apply for bank loans are very likely to be fraudulent;
- Consumers should assess their repayment ability, and fully grasp the actual costs to be incurred, as well as the loan structure before signing the contract. They should also consider seriously whether it is necessary to involve a financial intermediary for loan application.
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