(Yicai Global) April 11 -- China has rolled out a new policy to clean up the online lending market, targeting peer-to-peer (P2P) lending, student loans and microloans.
China’s Banking Regulatory Commission (CBRC) issued its Guiding Opinions on Risk Prevention and Control in the Banking Sector yesterday, requiring banking institutions to step up risk prevention efforts related to internet finance businesses, focusing on ten types of high-priority risks. The P2P lending risk rectification program will be pushed forward, alongside the clean-up of student and microcredit businesses.
The opinions mandate that the Interim Administrative Measures Concerning Business Activities of Online Lending Information Agencies and relevant filing, registration and fund custody regulations be strictly implemented, and illegal activities will be investigated and punished per their business categories as determined by the government, in line with the implementation plan for the rectification program. P2P lending agencies will be pushed to rectify their misconduct, and business suspension and closure, merger and transfer will be imposed where justified.
The regulator called for an effective clampdown on illegal student loan operators. Online lending agencies are prohibited from offering loans to people failing to meet the minimum income requirement, or to students aged under 18. They are also banned from engaging in misleading marketing or sales activities, or extending usurious loans.
With microloans, online lending agencies must ensure the legitimacy of funds provided by lenders in compliance with the law, and fraudulent marketing is prohibited. Provisions laid down by the supreme court regarding interest rates on private loans must be rigorously observed to prevent usury and the use of violence in debt collection.
To ward off risks associated with illegal fund-raising schemes, the CBRC required regulators at all levels to ramp up investigation into illegally-established banking organizations, and suppress illegal absorption of public funds and illicit lending businesses carried out under the guise of banking services. Banking financial institutions may not provide any financial services for illegal fund raising activities, and their employees are prohibited from participating in such activities. Furthermore, these institutions must cooperate with relevant government departments to ensure effective account and data monitoring, report irregular transactions without delay, and warn customers against illegal fund-raising schemes.
Microloans are offered mostly by individuals and families to the self-employed and small business owners. The value of a microloan is typically between CNY1,000 and CNY100,000. They arouse widespread concern due to the usurious interest rates they charge. Annualized interest rates reportedly can be as high as 600 percent, with even lower ones above 100 percent.
P2P lending sites offer student loans to college students. The effectiveness of risk-control measures implemented for student loans varies significantly from site to site, and instances of identity theft have been discovered among student loan operators, a survey shows. Annualized interest rates of student loans can also be as high as 70 percent, according to media reports.
In March 2016, a university student in Henan committed suicide after borrowing unsecured loans worth hundreds of thousands of yuan from student loan sites using his own and his classmates’ identities.