(Yicai Global) May 11 -- The China Banking and Insurance Regulatory Commission has brought in new regulations on digital consumer loans that prevent banks from lending more than CYN200,000 (USD28,300) and for issuing loans lasting more than one year.

Borrowers will also be unable to use the debt for homebuying, repayments on residential mortgages or investments, East Money reported cited the regulator as saying. Lenders are allowed to use big data for automatic credit assessments and approvals, a benefit not offered to traditional banks.

Online lending in China has sprouted a host of issues, such as over borrowing, taking out loans to pay off existing loans, and non-compliant use of borrowed money, according to the report.

“Setting the upper limit at CNY200,000 shows regulators are trying to achieve a balance between spurring consumption and controlling how loans are used,” Xue Hongyan, deputy head of the Suning Institute of Finance, told Yicai Global. This will also help reduce the amount of consumer loans that make their way into the stock and real estate markets and could to some extent control how fast residents’ personal leverage ratios are growing, he added.

For business loans, commercial banks should set limits based on a company’s ability to manage risk, region and sector and re-evaluate longer-than-one-year loans at least annually.

“Lenders should also seek to retrieve their principal back as soon as possible if they believe a borrower is using their loan proceeds illegally,” an executive at the CBIRC said, adding that banks should also manage limits for entrusted loans -- those conducted between two companies with the bank operating as an intermediary.

The regulation also says commercial banks cannot completely outsource their loan granting and collections business and in cases where they do use collectors or lending agents, the third party may not levy additional interest or fees on borrowers.

Editors: Zhang Yushuo, James Boynton