19th November 2023 – (Hong Kong) Hong Kong has seen a worrying trend in recent years of red paint being splashed on properties by debt collectors hired by finance companies and loan sharks. This bizarre practice has become a notorious calling card of triad-connected debt collectors seeking to intimidate and embarrass debtors into repaying overdue loans.

The “red paint attacks” typically target the doors and walls outside a debtor’s home or workplace. The vivid red paint leaves a shocking and hard-to-remove stain, like a scarlet letter advertising the debtor’s supposed financial irresponsibility.

In some cases, the attacks have even targeted the property of the debtor’s family, friends or neighbours in a menacing demonstration of the debt collectors’ capacity for harassment. Handwritten notes are sometimes left at the scene demanding repayment or the consequences will escalate. This phenomenon highlights two concerning issues in Hong Kong society. First is the rise of predatory lending by unscrupulous finance companies and loan sharks. Second is the lax regulation of the debt collection industry, which allows intimidation tactics and triad involvement to flourish.

The increase in red paint splashing incidents over the past five years is an alarming indicator of these twin problems. According to police statistics, crimes related to debt collection grew 45% from 2017 to 2021. Reports of criminal damage — mostly red paint vandalism — jumped 55% over the same period.

Behind the growth in red paint attacks is a surge in high-risk consumer lending by finance companies seeking quick profits. Following Hong Kong’s economic downturn in the late 1990s, banks tightened their credit card and personal loan requirements. This left an opening for lightly regulated finance companies to fill the void by aggressively extending credit to subprime borrowers.

The finance companies make money by charging high-interest rates, sometimes upwards of 60% APR. They market easy loan approval with minimal verification of income or existing debt. Many customers struggle to repay these expensive loans, especially if they take on additional borrowing. Default rates have climbed steadily since 2015 along with the proliferation of finance company lending.

Some unethical finance companies even allegedly hire triad gangs as loan sharks to issue illegal high-interest loans backed by violence and intimidation. They share a portion of the usurious profits while maintaining arms-length separation from the underworld loan sharking operations. This gains them a competitive edge by offering credit to the highest-risk borrowers shut out of legal lending channels.

When borrowers fall behind on repayment, finance companies often turn to heavy-handed debt collectors instead of pursuing legal collection methods. Lax regulation of the debt collection business allows collectors to employ harassment and threats without serious legal consequences.

The current regulatory framework attempts to control abusive collection through voluntary industry codes of conduct and general prohibitions on criminal behaviour like assault, criminal intimidation and criminal damage. However, without licensing requirements or an independent regulator monitoring the debt collection sector, there are insufficient safeguards to prevent improper tactics.

Some unscrupulous collectors are essentially triad footsoldiers unleashed to bully and frighten debtors into paying. The police even say they have uncovered triad-affiliated groups specifically formed to carry out red paint vandalism and other debt collection harassment like aggressive phone calls and home visits. Yet because the sector is unregulated, these groups can subcontract collection assignments from finance companies while concealing their triad connections. Their methods clearly violate any sensible code of conduct, but the lack of enforcement renders such codes ineffective.

Finance companies sometimes tacitly encourage overly aggressive collection to maximize recovery on their risky loans. They can simply disavow knowledge of any criminal behaviour by their collectors. And they know debtors are reluctant to pursue legal action which may only incur further retaliation from the triad-linked collectors.

The red paint vandalism must be understood as part of a pattern of escalating harassment against delinquent borrowers. It reflects a failure by lenders and collectors to resolve overdue debts through reasonable communication and negotiation. Instead, they resort to humiliation and intimidation to forcibly collect.

Finance companies often outsource collection of severely delinquent accounts to third-party agencies without verifying their methods. Some collectors immediately turn to aggressive tactics like frequent phone calls, visiting the debtor’s home and workplace, threatening their family, and splashing paint or spraying graffiti on their property.

Each tactic by itself may not be decisively illegal, though certainly unethical. But collectively they constitute unambiguous harassment and criminal damage. The implicit violence and potential for public shaming pressure many victims into sometimes usurious repayment arrangements that worsen their financial distress.

And when debtors fail to yield, the vandalism can escalate further to physical assault or other serious crimes. The bright red paint is a clear warning the collectors mean business and won’t hesitate to do real harm. It signifies lawlessness, like how gangs mark their turf with graffiti tags.

This reinforces the grim reputation of triad-affiliated collectors who purport to be “following you until you pay”. Some may perceive a twisted sense of justification that public shaming and psychological terror are fair comeuppances for borrowers who don’t repay. They ignore that disreputable lending practices often trap people in impossible debt.

The vulnerability of subprime borrowers makes them susceptible to predatory lending and collections tactics. Many are low-income workers or small business owners denied credit from mainstream banks. Some turn to finance companies out of desperation without fully comprehending the stranglehold of interest payments.

Regardless of how the debts originated, even the least sympathetic defaulters don’t deserve harassment of family or vandalism endangering public safety. There are always more ethical solutions than unleashing triad thugs as underworld repo men, especially when it becomes collective punishment of innocent neighbours.

Clearly, the lenders and collectors, not their victims, are responsible for resolving unpaid debts productively. That begins with making credit available only to qualified borrowers via prudent underwriting, not mass solicitations. But meaningful government oversight is essential to transform the industry’s dubious practices.

Introducing mandatory licensing and compliance monitoring would be a positive step. This would restrict who can operate as a debt collector and prevent disreputable agencies from forum shopping the least restrictive jurisdiction. Strict penalties against unlawful harassment and triad association could help suppress wanton abuses. Education is also needed to inform prospective borrowers, especially youth targeted by finance companies for easy credit cards or online loans, about the downsides of excessive debt. Responsible personal finance habits will limit their vulnerability to unscrupulous lenders and collectors.

Hong Kong tarnishes its reputation as a financial centre and open society by allowing debt collection harassment to fester. The red paint attacks are a visible symbol of underlying corruption. Unless greater transparency and accountability are imposed on the lending and collection industry, the most desperate and defenceless borrowers will continue to suffer predation.

Smart regulation can temper the worst exploitative practices without imposing excessive burdens on ethical companies. But absent meaningful reforms, we enable an underworld economy to profit from deception, fear and violence. Red paint may wash away, but these deeper stains on Hong Kong society are not so easily removed.