PRACTICE UPDATE
MONEYLENDING IN
THE ISLE OF MAN
Andrew Webb
The Moneylenders Act 1991 (the 1991 Act) was intended to regulate lending
practices in the Isle of Man by providing a regulatory framework for consumer loan
agreements.
The Act however has suffered from its open drafting,
and has created a regulatory burden and an
environment of uncertainty for businesses on the
Island which have had to assess, until this year, even
innocuous intra-group lending to determine whether
registration under the Act is required.
In 1908 the first Moneylenders Act (the 1908 Act)
was enacted on the Island following the introduction
of the 1900 Act in the UK in order to regulate
moneylending. It introduced the requirement
that any person who carried on a business of
moneylending or advertised himself as such on the
Island, had to register in order to do so or be liable on
conviction to a fine and/or imprisonment.
Tynwald (the Parliament of the Isle of Man) recognised
the need for further legislative protection for the
potential victims of ‘loan sharks’, leading to the
introduction of the 1991 Act. The 1991 Act updated
the framework of the 1908 Act and also included
supplementary provisions relating to the harassment
of debtors, canvassing outside of trade premises and
powers for the then Board of Consumer Affairs (now
the Office of Fair Trading (the OFT)) to introduce
regulations to regulate certain credit transactions.
The 1991 Act requires that any potential party,
not otherwise exempt in terms of the Act or by
Order, would need to be carrying on a ‘business’ of
lending money in the Island in order to fall within
the definition of a moneylender and therefore be
required to register. The 1991 Act describes a list of
institutions that are exempt from the requirement to
register and includes, among others, those institutions
holding an Isle of Man licence to hold deposits, certain
Isle of Man building societies, and authorised Isle of
Man insurers. In addition to the listed institutions,
there is a power to exempt by regulation of Tynwald.
The 1991 Act did not distinguish between different
types of lenders and borrowers, and as such could
Appleby Finance Newsletter, Q1 2014
include any lending in the course of a business which
is outside the stated exemptions, even in situations of
corporate intra-group financing.
The OFT has taken the stance that the requirement
to register under the 1991 Act does not extend to the
provision of hire purchase or credit sale facilities, or
the issuing of credit cards. However, the 1991 Act
makes it clear that merely collecting money due under
a loan or a related transaction does count as carrying
on a business of lending money. It is immaterial if
that contract or loan is technically entered into outside
the Isle of Man if the money is to be collected here.
If a person carries on a business of moneylending on
the Island and is not registered or exempt, an offence
will be committed and the person will be liable to a
fine. However, the consequence of illegality is that,
whether or not it is in the interests of justice between
the lender and borrower, the legal right to recover
money under a loan contract is lost.
‘Carrying on a Business’
The expression ‘carrying on a business’ of
moneylending, (the state of affairs that must exist
for a party to fall under the requirement to register),
is difficult to interpret. The English Court of Appeal
case of R v John Francis Napoli [2012] EWCA Crim
1129 held that an individual who accepted deposits
on two occasions that were 18 months apart would
be considered to be accepting deposits ‘by way
of business’, and therefore liable to conviction for
carrying out an unauthorised regulated activity under
the Financial Services and Markets Act 2000 (an Act
of Parliament). The Court of Appeal held that on the
facts (the size of the deposits, the detailed contracts
that delivered the deposits and the profit motive) the
transactions had been made ‘by way of business’.
The knowledge that the definition of ‘business’ can
be interpreted by the courts to extend to situations
where only infrequent transactions have taken
PRACTICE UPDATE
“… unfortunately these
Regulations are not a
cure all. Transactions
between a lender and a
sole trader … do not fall
under the exemptions
notwithstanding that
if that individual
incorporated, the
transaction would be
exempt!”
place, highlights the ambiguity lenders face when
determining whether they are required to register.
The Moneylenders (Amendment) Act 2012
The Moneylenders (Amendment) Act 2012 received
Royal Assent on 11 December 2012 and came fully
into operation on 15 May 2013 (the Amendment
Act). The government has recognised that change
is essential, but has not yet favoured a repeal
of the 1991 Act due to the time and expense of
introducing completely new legislation. As a short
term solution, the recently introduced Amendment
Act should reduce the amount of transactions caught
by the 1991 Act. In the long term a more complete
solution would be a complete re-writing of the
legislation with the Financial Supervision Commission
taking on the majority of the functions that the
OFT currently exercises in regulating the corporate
business element, leaving the OFT to administer small
borrowings. The Amendment Act aims to provide a
simple solution for the ambiguities inherent in the
1991 Act by providing the OFT with wider powers
to exempt persons from the need to register as
moneylenders.
Despite the best intentions of the OFT to resolve the
uncertainty and complications regarding the need to
register under the 1991 Act, the framework of the
1991 Act will mean that problems of interpretation
Appleby Finance Newsletter, Q1 2014
are likely to persist. Since the original intention of
the 1991 Act was to provide protection to consumers
on lower incomes, we would submit that consumer
protection should form the subject of a new Bill which
does not attempt to build on the loose and ambiguous
foundations of the 1991 Act.
Exempt Persons and Transactions
The Regulations came into operation on 22 May
2013, to complement the Amendment Act. It
extends the list of exempt persons and details the
transactions which are now exempt from the triggers
of registration under the 1991 Act (as amended by
the Amendment Act).
The broad scope of the 1991 Act means that a
wide range of transactions previously triggered the
requirement to register. The Regulations therefore
aim to restrict these transactions to those that the
1991 Act originally intended to protect. As stated
above, the 1991 Act was introduced to protect
individual consumers and these new Regulations
reflect this purpose by exempting transactions
between body corporates. This should largely assist
corporate intra-group financing in the future.
However, unfortunately these Regulations are not a
cure all. Transactions between a lender and a sole
trader (no matter how sophisticated) do not fall under
the exemptions notwithstanding that if that individual
incorporated, the transaction would be exempt!
CONTACT
Isle of Man
Andrew Webb
Counsel
Corporate & Commercial
+44 (0)1624 647 692
[email protected]