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 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  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 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 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!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.