How Do Banks View the "New Regulations on Personal Loan Interest and Fees"? Industry: Favorable for Mitigating Loan Penalty Interest Disputes, Beneficial for Leading Institutions

How will leading institutions leverage new regulations to increase market share?

Cailian Press, March 16 — (Reporter Peng Kefeng) On March 15, the National Financial Regulatory Administration and the People’s Bank of China jointly issued the “Regulations on Clear Disclosure of Comprehensive Financing Costs for Personal Loan Business” (hereinafter referred to as the “Regulations”). The Regulations specify the scope and procedures for disclosing interest and fee information related to personal loans and clarify that they apply to banks, consumer finance companies, auto finance companies, trust companies, microloan companies, and other lending institutions.

How do banks view the “new personal loan interest and fee regulations”? What impact will they have on banks’ business development? Today, Cailian Press reporters interviewed representatives from several joint-stock banks and city commercial banks. Industry insiders believe that the new regulations will help further standardize and clarify the responsibilities of lenders and banks, better protecting the rights of financial consumers.

“Multiple banks: Have conducted in-depth discussions on the new regulations and will make adjustments as soon as possible”

The Regulations state that the comprehensive financing cost of personal loan business refers to all interest and fee costs borne by the borrower related to the loan, including but not limited to loan interest, installment fees, credit enhancement service fees, and normal performance costs, as well as potential costs such as late payment penalties in case of default. Lenders should determine the annualized level of comprehensive financing costs in accordance with laws and regulations.

Additionally, the Regulations include all components such as loan interest, installment fees, credit enhancement service fees, late payment penalties, and penalties for misappropriation under default into the comprehensive financing cost.

“After the regulations were issued, we immediately organized in-depth discussions and training sessions with departments like the personal loan division. Everyone believes this is a positive development for the growth of personal loan business,” said representatives from several joint-stock and city commercial banks to Cailian Press. They have gained a relatively thorough understanding of the “personal loan interest and fee regulations.” However, since the regulations are newly implemented, adjustments to backend systems, contract information, and disclosures will take some time.

One executive from a listed bank further stated that, based on the content of the Regulations, it mainly emphasizes strengthening the bank’s role in prompting, reminding, and informing about loan costs. In practice, banks have generally been compliant in disclosing loan interest, and practices like “head-cutting interest” and “additional fees” are often used by internet platforms and consumer finance companies. Therefore, the overall impact of the “personal loan interest and fee regulations” on banks is positive. Moving forward, they will further enhance the information confirmation procedures with borrowers.

A representative from a national commercial bank also mentioned that, in the past, banks would specify various interest and fee costs in loan agreements with borrowers. However, some banks might have been somewhat discreet. With the new regulations, the emphasis on multi-channel confirmation through online and offline channels will make financial services more transparent and better protect consumer rights.

“Helpful in resolving some disputes after personal loan defaults, benefiting leading institutions”

Several bank insiders told reporters that, overall, the most significant impact is expected to be in post-loan disputes and complaints.

An executive from a listed bank further explained that, historically, the overall loan market was “in short supply,” and banks held a relatively strong position. As a result, there were no clear regulations on late payment penalties, penalty interest rates, or total penalties—many simply stipulated that penalties would be “imposed according to relevant circumstances.” However, the “personal loan interest and fee regulations” explicitly require banks and other institutions to “itemize potential costs and their standards and responsible parties in cases of overdue or misappropriated loans,” which means banks can further clarify responsibilities in case of default.

“In the past, when a loan defaulted, some clients would use vague contract terms as an excuse to negotiate with the bank, which was quite troublesome for banks. Now, with responsibilities and rights more clearly defined, banks can better assert their rights,” an internal bank source told us. “After the implementation of the ‘personal loan interest and fee regulations,’ complaints and disputes related to late payment penalties are expected to decrease significantly, and customer satisfaction may also improve.”

It is also worth noting that some banking insiders believe that, in the past, some small and medium-sized banks in certain regions might have used misleading language in loan contracts to attract customers. Once the “personal loan interest and fee regulations” are fully enforced, borrowers will have a clearer understanding of the true costs of loans, and with more transparent channels, the current environment of relatively uniform loan interest rates across the industry—especially amid the current “anti-involution” trend—more borrowers may prefer to choose larger, more compliant institutions with stronger capabilities.

(Cailian Press, Reporter Peng Kefeng)