Financial Regulatory Administration and People's Bank of China Release Regulation: Comprehensive Financing Cost of Personal Loans to Be Disclosed to Borrowers

Log in to Sina Finance App and search for [Information Disclosure] to see more evaluation levels.

All costs related to personal loans will be included in the comprehensive financing cost, including but not limited to loan interest, installment fees, credit enhancement service fees, and other financing costs under normal performance, as well as potential costs such as overdue penalty interest in case of default. These will be displayed by the lender on a “Comprehensive Financing Cost Disclosure Table.” The regulation will take effect on August 1.

◎ Reporter Han Songhui

According to the State Administration of Financial Supervision and the People’s Bank of China, released on March 15, the two agencies recently issued the “Regulations on the Disclosure of Comprehensive Financing Costs for Personal Loan Business” (hereinafter referred to as the “Regulations”), requiring lenders to present a comprehensive financing cost disclosure table to borrowers, promoting transparency and standardization in the disclosure of interest and fee information for personal loans.

Industry experts stated that the implementation of the “comprehensive financing cost disclosure table” for personal loans will make all interest and fee information transparent, better protect the legal rights of financial consumers, facilitate the smooth transmission of financial policies benefiting the public, and promote healthy industry development.

In recent years, China’s personal loan market has developed rapidly, but issues such as irregular interest and fee practices, especially in internet lending, have frequently occurred. Industry insiders told Shanghai Securities News that: on one hand, this increases the borrowing costs for borrowers, interferes with the implementation of financial policies and interest rate transmission, and weakens the quality and efficiency of financial services; on the other hand, it damages the legitimate rights of financial consumers and can easily lead to financial disputes.

The causes of these irregularities are complex. Industry analysts point out that inadequate and non-standard disclosure of interest and fee information for personal loans, and insufficient protection of consumers’ right to know, are key factors.

To accurately and comprehensively reflect the actual financing costs borne by borrowers in personal loan transactions, the “Regulations” will include all costs related to personal loans in the comprehensive financing cost, including but not limited to loan interest, installment fees, credit enhancement service fees, and potential costs such as overdue penalty interest in case of default.

These comprehensive financing costs will be displayed by the lender on a “Comprehensive Financing Cost Disclosure Table.” The table should specify the loan principal amount, the annualized comprehensive financing cost under normal performance, and the potential costs and fee standards in case of default.

The “Regulations” require lenders to clearly remind that, aside from the costs already disclosed, neither the lender nor its partner institutions will charge any other interest or fee related to the loan.

When financial consumers handle personal loans on-site, they must sign to confirm the disclosure on the comprehensive financing cost table; for online applications, lenders will display the table via a pop-up window with a mandatory reading period, and borrowers must confirm.

All types of lending institutions are included in the scope of the “Regulations,” including banks, consumer finance companies, auto finance companies, trust companies, and microloan companies.

“Considering the practical needs for lenders and their partner institutions to adjust business processes and systems, modify cooperation agreements, revise internal management systems, and conduct policy training, about five months of preparation time is reserved,” said a person in charge of the relevant department at the State Administration of Financial Supervision and the People’s Bank of China.

The “Regulations” will come into effect on August 1. According to the principle of “new and old,” new business activities must strictly follow the requirements for disclosing comprehensive financing costs as specified.

The “Regulations” also require lenders to strengthen management of marketing, customer acquisition, guarantee, and credit enhancement partner institutions. Cooperation agreements should clearly specify each party’s responsibilities and obligations regarding the disclosure of comprehensive financing costs; violations by partner institutions should be corrected promptly, and serious cases may involve termination of cooperation.