Hidden tricks in personal loan interest and fees can't be concealed anymore. Multiple banks and loan assistance providers are urgently rectifying issues to face regulatory scrutiny.

Source: 21st Century Economic Herald Author: Ye Maiju

Personal loan advertisements with low entry barriers and fast disbursement frequently appear on mobile and social platforms. Behind what seems like convenient lending services, however, the industry’s pain points are actually hidden: unclear fees and higher-than-expected real costs.

Recently, the National Financial Regulatory Administration and the People’s Bank of China jointly issued the “Provisions on Mandatory Disclosure of the Comprehensive Financing Cost for Personal Loan Business” (hereinafter the “Provisions”). The rules focus on issues such as ambiguous disclosure of interest and fees, and hidden charges. They force lending institutions to use a comprehensive financing cost disclosure table to list all interest and fees, the charge standards, and the fee-collecting entities in a complete manner, so that interest and fee information can be made “clear in a single table.” The new rules will take effect on August 1 this year under the principle of a split between old and new arrangements.

After the policy was released, it quickly triggered a stir across the industry. Multiple banks have already launched internal discussions and business reviews. Industry consensus is that full disclosure of the comprehensive financing cost will fundamentally rewrite the cooperation logic between banks and loan-assisting (referral/lending) institutions, pushing the cooperation ecosystem to upgrade toward lower cost, higher compliance, and lighter channel reliance.

Rectifying “low-interest lead generation with fee stacking”

The operating model of “low interest to attract borrowers up front, and stack fees in the back end” has long been a persistent industry problem and has drawn widespread criticism from the market. The main reason is that when borrowers apply for loans through third-party channels, they can usually only see the base interest rates published by banks, and have difficulty noticing a series of miscellaneous charges collected by loan-assisting platforms and credit enhancement institutions—such as service fees and guarantee fees—leading to an actual annualized cost far higher than what is advertised. As a result, there have been a large number of consumer complaints and financial disputes.

This round of “Provisions” closes regulatory loopholes at the institutional level. It requires that all financing costs—including interest, service fees, credit enhancement expenses, and more—be calculated uniformly and fully disclosed. At the same time, it provides institutions with a nearly five-month remediation transition period to ensure the policy rolls out smoothly.

“From a long-term perspective, compliance is a strategic opportunity to build trust assets.” Tian Lihui, a professor of finance at Nankai University, said financial institutions need to grasp three key directions. First, speed up system and process renovation; in line with regulatory requirements, complete end-to-end remediation such as online and offline display of the disclosure table and mandatory reading settings before August 1, 2026. Second, conduct a comprehensive review of cooperating institutions: carry out compliance checks on cooperation parties such as loan-assisting platforms and guarantee companies, clarify each party’s responsibilities, establish违规 (non-compliance) early-warning and exit mechanisms, and strictly prevent risks arising from “loss of management and loss of control of cooperating institutions.” Third, promote a shift toward more refined operations: use technical means to reduce customer acquisition costs and improve risk-control precision; on the basis of transparent pricing, build capabilities for differentiated services.

The reporter learned from multiple banks that after the new rules were issued, most banks have already completed policy interpretations and internal deployments. A relevant executive at a joint-stock bank disclosed that the head office is accelerating the drafting of supporting implementation rules, focusing on optimizing business processes and contract text to ensure the disclosed content is complete and compliant. Banks will fulfill disclosure requirements through methods such as explicitly disclosing loan notices, issuing separate confirmation letters, and embedding them into loan agreements. The specific implementation model is still being further discussed in light of practical execution efficiency.

Industry chaos in which interest and fees are split and concealed has its root cause in the traditional cooperation model between banks and loan-assisting institutions. Banks provide the funds; loan-assisting and credit enhancement institutions are responsible for customer acquisition and risk backstopping. Although these fees are marked in the contracts, because online contracts are lengthy and users confirm quickly, borrowers often cannot fully perceive the true cost.

“Previously, when I bought a car, I ran into a similar situation. For example, the bank’s loan interest rate is 3% annualized. If I take out a loan of 100,000 yuan, the interest expense in the first year should not exceed 3,000 yuan. However, through a loan-assisting financial institution, I have to pay a processing fee. This so-called processing fee is for things like checking the borrower’s credit report and collateral, etc. The fees differ among different auto finance companies, but generally they are around 2,000 yuan to 3,000 yuan. If you buy a more expensive car with a higher loan amount, the fees could be higher as well. If you add all these fees into the loan, the annualized interest rate rises significantly.” Mr. Lin, a city resident, told the reporter.

Mr. Lin said these fees are extremely well hidden. Generally, unless you ask proactively, the loan-assisting staff will not explain proactively. Only after signing the contract might the borrower learn about the fee.

Gao Zhengyang, a special research fellow at China Everbright Suqian Bank (Sushang Bank), said the new rules unify the accounting standards for financing costs and promote a pricing mechanism that is more open and transparent. Banks should shift toward differentiated pricing centered on customer credit, incorporate risk premium into the interest rate system, and at the same time improve operational efficiency. Through refined management to address pressure on returns, the logic of pricing should shift from being fee-driven to being driven by risk and efficiency.

Industry concentration will continue to rise

Bank insiders generally believe the new rules have limited direct impact on licensed banks; more importantly, they upgrade and improve existing compliance systems. But they will significantly impact small and medium-sized banks and loan-assisting institutions that rely on high-cost lead generation. The new rules make it clear that no loan-related fees may be charged beyond the disclosure table. Combined with prior regulatory requirements for online loan-assisting businesses, banks have already tightened cooperation white lists and will prioritize cooperation with top platforms that have strong qualifications.

Wang Pengbo, chief analyst at Bain & Company (BtoB) Consulting, said that after the “Provisions” are implemented, it will definitely significantly accelerate the elimination of the weaker and the survival of the stronger. Loan-assisting institutions that maintain operations by relying on non-transparent interest and fees, charging through disguised means, and using high-cost customer acquisition will quickly lose competitiveness. The cooperation threshold for the funding providers will also be raised at the same time. Industry resources will concentrate on leading institutions with standardized pricing, strong risk-control capabilities, and compliance in disclosure, and the pace of industry clearing will be noticeably faster.

The new rules not only reshape the industry landscape but also force banks to adjust their business strategies and rebuild their profit models and cooperation ecosystems. A relevant executive from a joint-stock bank told the reporter that after comprehensive costs are uniformly disclosed, some business fee rates that rely on third-party cooperation may need to be reduced. Banks must recalculate returns and optimize pricing models. Meanwhile, banks should accelerate the elimination of loan-assisting and guarantee institutions with high costs and low compliance, and shift to cooperation models that are low-cost, strongly compliant, and light on channel dependence—balancing customer acquisition efficiency with compliance bottom lines.

Su Xizhi Yan senior research fellow Su Xiaorui believes that the “one-table-clear” mechanism ends some institutions’ hidden-profit models. As the lending entity, banks must take responsibility for management across the entire process. They need to clearly define the fee items and standards charged by each cooperating party, and push for a deep reconstruction of the cooperation model and pricing system. In the future, banks will implement full lifecycle management of cooperation institutions, strengthen their own customer acquisition and risk-control capabilities, and reduce dependence on external channels. Loan-assisting institutions will return to being positioned as specialized service providers for technology, traffic, and scenarios. Banks will hold the pricing power and initiative across the entire loan value chain, promoting long-term healthy development of the industry.

Tian Lihui believes the industry will show a clear pattern of “short-term pain and long-term reshaping.” In the long run, the industry will achieve three major changes. First, the business model will transition from “arbitraging information asymmetry” to “using technology to reduce costs and increase efficiency.” Second, the focus of competition will shift from “front-end customer acquisition ability” to comprehensive service capability covering the entire lifecycle. Third, the industry ecosystem will move from “unclear responsibility” to “transparent and standardized practices with clearly defined rights and duties.”

As the implementation timeline for the “Provisions” approaches, recently multiple banks and consumer finance companies have stated that they have already begun remediation and will implement the changes soon.

(Editor: Wen Jing)

Keywords:

                                                            Personal loans
                                                            Loans