Cash advance not a loan, court hears

PUBLISHED : Thursday, 24 May, 2012, 12:00am
UPDATED : Thursday, 24 May, 2012, 12:00am


A former senior banker who founded a company that is accused of unlicensed moneylending argued in court yesterday that no other common law jurisdiction categorised its cash-advance product as a loan.

Richard Grainger, a 40-year-old Briton who is a former senior director of Barclays Capital, testified in Eastern Court that no research he conducted before setting up Global Merchant Funding (GMF) showed that its cash-advance product was considered a loan in either the United States, Britain or Canada.

'It was clear that, in those markets, it was treated as a sale and purchase of credit card receivables. It was not treated as a loan,' said Grainger, an economics graduate of Cambridge University.

Under the 'merchant cash-advance contract' that it offers to restaurants and retailers, GMF buys merchants' future credit card and debit card receivables at a discount, he said. The company takes a certain percentage of card sales directly from the merchant's processing bank. There is no deadline by when the amount must be paid.

GMF has pleaded not guilty to one count of carrying out business as a moneylender in breach of the Money Lenders Ordinance. The ordinance carries maximum penalties of a HK$5 million fine and 10 years' jail.

The prosecution argues that the nature of GMF's product is a loan, but GMF says it is a cash advance.

'I've never had any experience in loan products,' Grainger said.

Grainger said he joined the banking industry in London in 1994 and moved to Hong Kong in 2003. Before Barclays, he worked for Credit Suisse. He founded GMF - in which he is now a managing director - in 2009.

He said that before and after the business was set up, neither the police licensing bureau, the Hong Kong Monetary Authority nor legal advice sought by the company raised any doubt over the company's lack of a moneylender licence.

'We [directors] are certainly surprised to be sitting here today,' Grainger told the court. He said he learned of the police investigation into his company only after reading a South China Morning Post report.

The hearing ended with Magistrate Li Kwok-wai expelling a solicitor instructed by the defendant's competitor company, AMP, after discovering him taking notes without his permission. Li ordered a partner of the solicitor's law firm to attend today's continued session to provide him with a written explanation.

GMF co-founder and managing director Avery Stone, a former senior executive for MasterCard Worldwide, is due to testify next.