China issues new rules to clean up runaway cash loan market
Rapid growth of cash loans has led to ‘over lending, repeated credit extension, unregulated payment collection and extremely high interest rates charges and violation of individuals’ privacy’, according to regulators
China on Friday issued new rules to clean up its controversial cash loan and online micro lending market, including prohibiting lending to people without an income and putting a curb on the total charges on runaway credit, according to an official notice seen by the South China Morning Post.
The notice was jointly issued by the People’s Bank of China and the China Banking Regulatory Commission – the central bank and banking watchdog – to crack down on risks in the nation’s internet financing and peer-to-peer online lending segments.
Cash loans, also known as payday loan, are unsecured, short-term, micro cash advances offered to individuals who do not need to give reasons for the borrowings.
They have grown rampantly in China to the extent that issues such as “over lending, repeated credit extension, unregulated payment collection and extremely high interest rates charges and violation of individuals’ privacy” emerged, the notice warned.
It ordered therefore, that with immediate effect, all organisations and individuals must obtain a licence to conduct lending business. All lending institutions must also state clearly a comprehensive charge, which includes interest rates and various fees charged for different categories of offerings for the loan.
The tightened controls attempt to curb a common practice where online lending platforms bypass the maximum legal interest rate charge of 36 per cent with additional add-on fees.
“The new notice regulate the cash loan market in a comprehensive way as the wide definition of cash loan means it could involve all online micro lending now,” said Yu Baicheng, head of the research institute of wdzj.com, a website monitoring the online lending market.