On 08 Nov 2024, the HKMA mandated retail banks (including digital banks) to implement a minimum 7-day cooling-off period for unsecured consumer credit products, allowing customers to repay loans without fees or penalties. The circular requires clear disclosure of cooling-off terms and channels for repayment, with compliance required by end-June 2025, while encouraging broader adoption of similar measures across authorized institutions.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
SPOTLIGHT ON
FAMILY OFFICES
Introduction
On 08 Nov 2024, the Hong Kong Monetary Authority (HKMA) issued a circular mandating retail banks (including digital banks) to implement cooling-off periods for unsecured consumer credit products to promote responsible borrowing and mitigate risks of impulsive and excessive lending.
Scope and Purpose
The cooling-off period applies to all unsecured consumer credit products offered to individual customers, enabling them to repay loans with full principal repayment without providing reasons during the period. This arrangement aims to allow customers to re-evaluate financial obligations and repayment capacity, thereby minimising the impact of impulsive borrowing. The requirement explicitly excludes secured lending and applies to retail banks (including digital banks).
Key Requirements
The cooling-off period must not be shorter than 7 calendar days immediately following the loan drawdown date. Customers must not incur any handling fees, prepayment fees, early settlement fees, or similar charges for full principal repayment during this period. Interest payable for early repayment must not exceed the standard rate applicable if repayment occurs after the cooling-off period, preventing backdoor fee imposition.
Operational and Disclosure Obligations
Retail banks must provide accessible, timely, and efficient channels for customers to repay/redeem loans during the cooling-off period and process such requests without undue delay. Banks must clearly disclose the cooling-off period's key features—including duration, fee-free repayment, interest terms, and available channels—in a prominent manner at the loan application stage and upon loan approval notification.
Implementation and Applicability
Retail banks (including digital banks) must review and revise systems/documentation to comply with these requirements by end-June 2025. Authorized institutions are strongly encouraged to ensure Hong Kong subsidiaries offering unsecured consumer credit products adhere to these standards. Other authorized institutions offering such products are urged to adopt equivalent consumer protection measures.
View the full article:Source
