China criminalises loans with annual interest rates above 36 per cent in crackdown on private lending
- China’s Supreme Court and police authority issue joint ruling that criminalises any lending rates higher than 36 per cent per year
- The new ruling, which came into effect on Monday, could deal a heavy blow to China’s underground banking system
The Chinese government has issued a new ruling, effective from Monday, that makes lending at annualised interest rates above 36 per cent a criminal offence, a move that will deal a heavy blow to the country’s wild underground banking sector where interest rates of that magnitude or higher are not unusual.
A person or entity that lends money to more than 10 borrowers within two years for profit at an annualised interest rate of more than 36 per cent would face criminal charges for conducting an“illegal business operation”, according to a joint ruling by China’s Supreme Court, Supreme People’s Procuratorate, the Ministry of Public Security and the Ministry of Justice issued on Monday.
Penalties could include up to five years jail if the lender is found to have lent 2 million yuan (US$283,000), or generated a profit of more than 800,000 yuan (US$113,000) in credit. Offenders could also be penalised for lending money to more than 50 borrowers, or providing loans that led to the suicide, death or madness of a borrower or a borrower’s family members, according to the ruling.
Harsher penalties of at least five years in prison could apply to people found to have loaned more than 10 million yuan (US$1.4 million), or generated a profit of at least 4 million yuan (US$565,000), or lent to more than 250 borrowers. Creditors that issued loans that contributed to the suicide, death or madness of a borrower or a borrower’s family members would also face punishment.
In addition, all fees paid by a borrower to the lender – including agency fees, consulting fees, management fees and default penalties – would be calculated as part of interest paid, significantly lowering the threshold for a creditor to face criminal charges, according to the ruling that was dated July 23 but only made public on October 21.