HKMA Deputy Chief Executive Arthur Yuen's Article on New Personal Credit Products by Virtual Banks (12 July 2021)

In his article published on the "inSight" section of the Hong Kong Monetary Authority (HKMA) website, HKMA Deputy Chief Executive, Mr. Arthur Yuen, reiterates the authority's stance in encouraging the development of virtual banks to promote innovation in fintech, enhancing user experience and fostering financial inclusion whilst reminding virtual banks of the importance HKMA attaches to consumer protection, especially in the context of introducing new and innovative personal credit products. Key takeaways are: 

1. All eight virtual banks commenced their business in 2020, typically providing deposits and credit card spending offers at the initial stage. Consumers are familiar with these products. Of late, virtual banks have been introducing new personal credit products with special features. Deposit-linked personal loan products, salary-linked personal loan products and instalment payment for virtual credit or debit cards are quoted in the article as examples.
2. Various surveys indicate that the general public is very interested in the banking services provided by virtual banks. However, given the novelty of these services, the public may need more time to understand the details and features of these services and the terms and conditions governing them. Accordingly, HKMA requests virtual banks to take into account the needs of customers when designing these banking products. In addition, virtual banks are required to do the following:
   
   

   (a) Clearly disclose product features and risks to customers, in particular the relevant loan interest rates and the consequences of failure to make loan repayment;
   
   (b) Properly inform customers about the applicable terms and conditions, so that they are able to clearly understand the relevant details of the banking products and consider if the products meet their needs; and
   
   (c) When providing customers with new products and new banking services, continue to uphold the principles of customer-centric services and treat customers fairly. 
   
   

3. The article reminds virtual banks of the "double reminder" measure. That measure applies to all banks, whether virtual or conventional, and was prescribed in HKMA's circular titled "Enhanced Disclosure Measures in respect of Digital Platforms for the Application of Unsecured Loan and Credit Card Products" dated 4 September 2020. Under that measure, all banks should provide clear and prominent disclosures and obtain customer's confirmation of understanding in respect of (a) the key product features as well as terms and conditions of the credit product in general; and (b) the key details of the specific credit product that will be applicable to the customer such as interest rates and repayment arrangements, and educational messages on responsible borrowing. The objective is to help prospective borrowers understand the key features and the terms and conditions of the credit products, and give the prospective borrowers adequate chance during the application process to consider the implications of their repayment obligations, in order to enable them to make informed borrowing decision, thereby reduce the risk of impulsive or excessive borrowing.
4. As the product design of the above new personal credit products launched by virtual banks is relatively innovative, bank customers may not be familiar with such products. HKMA therefore requires virtual banks to enhance the related disclosures to customers. As an example to illustrate enhanced disclosures, for deposit-linked personal loan products, customers should be informed of any cap on the amount of deposits in the designated deposit account that will be eligible for the more favourable deposit interest rates, or any cap on the applicable deposit interest rates. In cases of customers failing to make repayment of card balances on due date, customers should be reminded of the starting date of the instalment loan term and charge of interest expenses.
5. In respect of collaboration between banks and commercial corporates in providing customers with promotional offers when opening bank accounts or using loan products, customers may be asked to provide personal particulars or meet certain conditions before they can enjoy the offers (e.g., having successfully referred friends or relatives to open bank accounts). In this regard, HKMA has requested banks to increase transparency so that customers can have a clear understanding about the details of the conditions for enjoying the promotional offers. HKMA will continue to closely monitor the market development and provide guidance to individual banks or the industry as appropriate to ensure adequate protection for both existing and prospective bank customers.
6. HKMA urges consumers to act smartly and responsibly in using these new personal credit products by learning more about and compare the new products provided by different banks; understanding the terms and conditions of these products; and paying particular attention to the applicable financial charges, possible implications on their financial positions and possible consequences of over-borrowing.

Link to article:

Hong Kong Monetary Authority - Arthur Yuen on New Personal Credit Products by Virtual Banks (hkma.gov.hk)

Link to circular "Enhanced Disclosure Measures in respect of Digital Platforms for the Application of Unsecured Loan and Credit Card Products" published in September 2020:

Enhanced Disclosure Measures in respect of Digital Platforms for the (hkma.gov.hk)