Financial Regulatory Administration and People's Bank of China Issue Regulations on Disclosure of Comprehensive Financing Costs for Personal Loans to Borrowers

All costs related to personal loans will be included in the comprehensive financing cost, including but not limited to the loan interest, installment fees, credit enhancement service fees, and other financing costs payable by the borrower 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.

According to the State Administration of Financial Supervision and Regulation’s announcement on March 15, the China Banking and Insurance Regulatory Commission and the People’s Bank of China recently issued the “Regulations on Disclosure of Comprehensive Financing Costs for Personal Loan Business” (hereinafter referred to as the “Regulations”), requiring lenders to present borrowers with a comprehensive financing cost disclosure table to promote 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 legitimate rights and interests 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 irregularities in interest and fee disclosures, especially in internet lending, have frequently occurred. Industry insiders told Shanghai Securities News that: on one hand, this increases the financing 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 and interests of financial consumers and can easily lead to financial disputes.

The causes of these irregularities are complex. Industry analysts believe that inadequate and non-standard disclosure of interest and fee information related to 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 the loan interest, installment fees, credit enhancement service fees, and other financing costs payable under normal performance, as well as 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 cost items and fee standards in case of default.

The “Regulations” require lenders to clearly remind borrowers that, apart from the costs explicitly 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, set a mandatory reading time, and require borrower confirmation.

All types of lending institutions are covered by the “Regulations,” including banks, consumer finance companies, auto finance companies, trust companies, and microfinance companies.

“Considering the practical needs for lenders and their partner institutions to adjust business processes and systems, modify cooperation agreements, update internal management policies, and conduct policy training, a preparation period of about five months is reserved,” said officials from the State Administration of Financial Supervision and Regulation and the People’s Bank of China.

The “Regulations” will be implemented starting August 1. Under the “new-old” principle, new business activities will strictly follow the requirements for disclosing comprehensive financing costs as stipulated.

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 implementation of the comprehensive financing cost disclosure requirements; violations or breaches by partner institutions should be promptly corrected, and serious cases may result in termination of cooperation.