The first phase of Hong Kong's money-lending reforms took effect on 1 August 2026, and the headlines were about loan referees and debt servicing ratio caps. Both measures bind licensed money lenders. They do not bind a sister lending her brother the deposit on a flat. The rules that do reach a family loan are older and stricter than most people assume. Since 30 December 2022, any person who lends at an effective rate above 48 per cent a year commits an offence, and a rate above 36 per cent is presumed extortionate. This guide separates what the 2026 reforms changed from what already applied to anyone lending money to family or friends.
What the 2026 reforms changed for a family loan
Very little, directly. The Financial Services and the Treasury Bureau published its consultation conclusions in March 2026, and the first measures were delivered as licensing conditions attached to every money lender's licence from 1 August 2026. Licensed lenders may no longer ask borrowers to name loan referees. Unsecured personal loans to low-income earners are subject to debt servicing ratio caps, and advertisements must carry a revised risk warning. A second phase, due on 1 June 2027, will add credit data reporting to the Credit Data Smart platform. Further amendments to the Money Lenders Ordinance (Cap. 163), including a stronger regulatory role for the Companies Registry, remain proposals until the Legislative Council enacts them.
A private lender holds no licence, so none of those conditions applies. The indirect effect is real, though. Relatives were often named as referees on a family member's loan and then harassed by collectors, and the ban ends that practice for licensed lenders. A referee and a guarantor are not the same thing. The ban protects a person whose name was merely given as a contact. It does nothing for a relative who signed a guarantee, who remains liable on the terms of that guarantee.
Legal framework
The Money Lenders Ordinance defines a money lender in section 2 as a person whose business is making loans, or who holds himself out as carrying on that business. Section 29 makes it an offence to carry on that business without a licence. Section 23 bars an unlicensed money lender from recovering the loan or enforcing any security, subject to the court's discretion. A private person who lends occasionally to relatives is not carrying on a business and needs no licence. A written loan agreement between individuals in Hong Kong is enough to record the terms.
Two provisions apply regardless. Section 24(1) makes it an offence for any person, whether a money lender or not, to lend or offer to lend at an effective rate above the statutory cap. Banks sit outside the Ordinance under section 3. A Legislative Council resolution lowered that cap from 60 to 48 per cent a year with effect from 30 December 2022. Under section 24(2), no agreement for repayment and no security is enforceable above the cap, and that covers the principal as well as the interest. On conviction on indictment, the offence carries up to ten years' imprisonment.
Section 25 lets a court reopen an extortionate transaction. Section 25(3) presumes a loan extortionate once the effective rate exceeds 36 per cent, a threshold lowered from 48 per cent on the same date. Between 36 and 48 per cent, the lender can rebut the presumption by showing the rate was not unreasonable or unfair. Below 36 per cent there is no presumption, but a borrower can still prove that the payments are grossly exorbitant under section 25(2). The court weighs the borrower's age, health and financial pressure and, under section 25(6), the lender's relationship to the debtor. A loan agreed before 30 December 2022 is judged against the thresholds in force when it was made. An extension agreed after that date may be treated as a fresh agreement, so recalculate the rate before rolling over an old family loan. The text of sections 24 and 25 of the Money Lenders Ordinance on e-Legislation shows both provisions in full.
When a private lender drifts into the licensing regime
The line is business, not amount. A one-off loan to a sibling normally sits outside it, whatever its size. The risk grows with repetition: someone who lends regularly at interest, to acquaintances as well as relatives, can find a court treating the activity as a money-lending business. The consequences are severe, since every loan becomes unenforceable under section 23 unless the court grants relief. In Re Florescent Holdings Ltd, the Court of First Instance found a triable issue on whether even a single loan amounted to unlicensed money lending.
Schedule 1 removes some loans from the definition altogether. A loan made in good faith by an employer to an employee is exempt from the licensing definition, though the 48 per cent cap still applies. Record a salary advance in the employment contract for Hong Kong staff, so that repayment by deduction stays within the Employment Ordinance (Cap. 57). A loan to a company with paid-up share capital of at least HK$1,000,000 is exempt from the licensing definition and from sections 24 and 25. Most start-ups founded by friends fall well below that figure. A loan from one founder to the company is safer recorded in the shareholders agreement under the Companies Ordinance, where its repayment terms bind every shareholder who signs.
Getting repaid: evidence, time limits and the Small Claims Tribunal
A private loan need not be in writing, but the borrower who stops paying will often call the money a gift. Between a parent and a child, a transfer may even be presumed to be one, so the lender starts at a disadvantage without documents. A signed agreement, a bank transfer reference and any later written acknowledgement are what a tribunal looks for. Instant messages help only if they mention the sum and a repayment date.
The Limitation Ordinance (Cap. 347) allows six years to sue on a simple contract, and twelve years where the loan was executed as a deed. A part payment or a written acknowledgement signed by the borrower starts time running again. Six years pass quickly between relatives reluctant to sue. The Small Claims Tribunal hears claims up to HK$75,000, the limit set in December 2018, without lawyers on either side. Larger debts go to the District Court or the High Court. The borrower has rights too. Under section 25(7), a debtor may ask the court to reopen an extortionate loan even before repayment falls due.
Documenting a family loan with Captain.Legal
The private loan template drafted to Cap. 163 starts by confirming that neither party lends as a business. It then records the principal, the date and method of transfer, and the account used, so the receipt clause matches the bank record. You choose an interest-free loan or enter a rate, and the guidance flags the statutory thresholds before you commit. The repayment structure follows, whether a lump sum, instalments or repayment on written demand, with optional guarantor and security sections. You also choose between a simple contract and a deed, which changes the limitation period from six to twelve years. The document downloads in Word and PDF. A simple contract can be signed electronically if both parties agree, while a deed is safer signed on paper. Keep the signed original, the transfer receipt and any later acknowledgement together, because a tribunal will ask for all three.
Common mistakes with family loans
The most expensive mistake hides in a "thank-you" payment. Section 2 counts as interest any amount paid above the principal in respect of a loan, whatever the parties call it, and Schedule 2 annualises it. Lend HK$10,000 against an agreed repayment of HK$11,000 one month later and the effective rate is 120 per cent a year. That breaches section 24, exposes the lender to prosecution and makes the whole debt unenforceable. Default interest is different. In Sun Entertainment Culture Ltd v Inversion Productions Ltd [2024] HKCA 884, the Court of Appeal held that it is left out of the effective rate under sections 24 and 25. An excessive default rate can still make the transaction extortionate under section 25(2), or fail as a penalty at common law.
The other errors are quieter. Lenders hand over cash with no receipt, then face a credibility contest. Some lend repeatedly at interest to a widening circle and drift towards the licensing regime. Relatives sign a guarantee believing it is a mere reference, a mistake the 2026 ban does not cure. Many assume the reforms capped interest on private loans in August 2026, when the ceilings that bind private lenders have stood since December 2022. And families let the six-year limitation period lapse while waiting for a better moment to ask.
Frequently asked questions
Did the August 2026 reforms change the rules for a family loan?
Not directly. The first-phase measures are licensing conditions that bind licensed money lenders: the ban on requesting loan referees, debt servicing ratio caps for low-income borrowers of unsecured personal loans and revised advertising warnings. A private lender holds no licence, so none of them applies. The rules that bind every lender, the 48 per cent criminal cap and the 36 per cent extortionate threshold, have applied since 30 December 2022.
Does the loan referee ban protect relatives who sign as guarantors?
No. The ban stops licensed money lenders from asking borrowers to name referees, the contacts who were often chased when a borrower defaulted. A guarantor is in a different position, having promised to pay the debt if the borrower does not. That promise remains enforceable after 1 August 2026. Before signing anything for a relative's loan, read whether the document calls you a referee or a guarantor, and ask for a copy of the loan terms.
Is a WhatsApp message or an IOU enough to prove a family loan?
It can be, but it is weak evidence. A private loan is enforceable without formal writing, and a message stating the sum and a repayment date helps. The difficulty is proof that the money was a loan rather than a gift, which is harder between a parent and a child. A signed loan agreement, a bank transfer reference and a later acknowledgement from the borrower make the claim far easier to establish.
Can I still recover a loan a relative stopped repaying years ago?
Only within six years from when the claim arose, under the Limitation Ordinance (Cap. 347), or twelve years if the loan was executed as a deed. For an instalment loan, time runs separately for each missed instalment. A part payment or a written acknowledgement signed by the borrower starts the period again, so ask for one before the six years run out. After expiry, the court will refuse the claim. For debts within the Tribunal's limit, a Small Claims Tribunal claim pack for Hong Kong sets out the particulars and interest.
Can I charge a friend a one-off fee instead of interest?
You can, but the law treats it as interest. Section 2 of the Money Lenders Ordinance counts any amount paid above the principal in respect of a loan as interest, and Schedule 2 converts it into an annual effective rate. A modest-looking fee on a short loan can exceed 48 per cent a year, which is an offence and makes the entire agreement unenforceable. Calculate the annual rate before agreeing any fee.
Can we sign a family loan agreement electronically?
Usually yes, if it is a simple contract. A loan agreement is not among the documents excluded by the Electronic Transactions Ordinance, and it attracts no stamp duty. Both parties should agree to sign electronically, ideally in the agreement itself. A formal promissory note is different, since negotiable instruments are excluded from the Ordinance. A loan executed as a deed for the twelve-year limitation period is another case, and the guide to electronic signatures in Hong Kong under the ETO explains why deeds are safer on paper.
Can I adapt the loan agreement for a deposit on a flat?
Yes. The loan agreement downloads in Word and PDF, and the Word file is the one to adapt. You can record the purpose of the advance, tie repayment to the sale of the flat or to fixed instalments, and add a guarantor if another relative supports the loan. Print the PDF for signature. A clear record also helps when a bank asks where the deposit came from, and it answers any later claim that the money was a gift.