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Agricultural Development Bank of China
Policy

China sets rules to clean up cash loan businesses

December 04, 2017


Abstract : Chinese regulators on Friday specified new rules to clean up the cash loan, or micro lending, businesses to rein in risks from the fast growing, loosely regulated market.

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BEIJING, Dec. 1 (Xinhua) -- Chinese regulators on Friday specified new rules to clean up the cash loan, or micro lending, businesses to rein in risks from the fast growing, loosely regulated market.

A notice issued by two leading offices under the central bank and the banking regulator laid out several key principles for the regulation, which bans unlicensed firms or individuals from carrying out lending business.

The borrowing costs should comply with the regulation on the interest rate of private lending as stipulated by the Supreme People's Court, with the maximum annual rate set at 36 percent.

Lenders will be prohibited from inducing over-borrowing, abusive debt collection and stealing customers' private information, according to the notice.

The regulators will also halt new approvals of online micro lenders and cross-region lending businesses.

The micro-lending market has seen explosive growth in recent years, as lending platforms offer easy cash loans to needy consumers.

While such firms have helped meet the financing demands of some, the industry's relentless growth and lack of regulation have left lenders and borrowers both unprotected, and there are frequent reports of defaults and malicious debt collection.

"On one hand, we need to clean up the market to prevent financial risk, on the other, we cannot smother the industry due to its role in consumption financing," noted Huang Zhen, a finance professor with the Central University of Finance and Economics.

Rumors have been circulating since last month of tougher regulations, which dealt a heavy blow to the stock prices of China's micro lenders mostly listed in New York.

In premarket trading, lending firm PPDAI Group, listed in New York Stock Exchange last month, slumped 11.46 percent, while Qudian Inc went down nearly 10 percent.

Shortly after the notice, Qudian announced that it fully supports the new rules, and will improve its products and services to help the healthy growth of the industry.

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Keyword: China-loan

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