A verdict triggered controversy: Does 4 times LPR apply to banks?
Will it impact the market?
Recently, a judgment on a dispute over a financial loan contract between Ping An Bank’s Wenzhou branch and a customer has aroused heated debate in the industry.
The judgment shows that the plaintiff Ping An Bank Wenzhou Branch filed a lawsuit with the People's Court of Ouhai District, Wenzhou City on July 14, 2020, requesting the court to order the defendant Hong Huidao to repay the principal and interest of the loan at 162,661.65 yuan.
If calculated according to the nominal interest rate, the annualized interest rates for interest and overdue interest are 18.36% and 24% respectively.
On August 27, 2020, the People's Court of Ouhai District, Wenzhou City issued a judgment of first instance.
The court held that the sum of the interest, principal penalty, and compound interest claimed by the plaintiff had exceeded the protection limit of four times the quoted interest rate on the one-year loan market. By calculation, it was 52744.27 yuan (far lower than the 83519.85 yuan claimed by the plaintiff).
Regarding the overdue interest, the plaintiff claimed that the monthly interest rate calculated at 2% exceeded the protection limit of four times the quoted interest rate on the one-year loan market at the time of the plaintiff’s lawsuit. .
The "four times the protection limit of the quoted interest rate of the one-year loan market" mentioned in the judgment is the upper limit of the judicial protection of private lending rates.
On August 20, the Supreme People's Court issued the newly revised "Regulations of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Loan Cases" (hereinafter referred to as "New Judicial Interpretation").
The new judicial interpretation adjusts the upper limit of judicial protection of private lending rates to four times the one-year loan market quote rate (LPR) issued by the National Interbank Funding Center authorized by the People's Bank of China on the 20th of each month, replacing the original " Two lines and three districts based on 24% and 36%."
Four times the latest LPR is 15.4%.
The disputes caused by the above judgment mainly have two points:
Controversy 1: Does the new judicial interpretation apply to loan contracts that occurred before the implementation date?
"Wenzhou's precedents are too arbitrary and willful, and are directly contrary to the judicial interpretation of the Supreme Law." Dong Ximiao, chief researcher of the Zhongguancun Internet Finance Research Institute, said, "The time is wrong, and the law does not go back to the past."
Liu Xinyu, a lawyer at Zhong Lun Law Firm, believes that in this case, Ping An Bank sued on July 14, 2020, and the case was heard on August 27, 2020. According to the relevant provisions of the Civil Procedure Law, the acceptance of the case can be inferred. The time is likely to be earlier than August 20, 2020.
In this case, the court still applied the provisions of the new judicial interpretation on the upper limit of interest rates to make a judgment.
"The application of the new judicial interpretation in this case may not meet the requirements of Article 32 of the new judicial interpretation." He said.
Article 32 of the New Judicial Interpretation stipulates that “after the implementation of these regulations, new first-instance cases of private lending disputes accepted by the people’s courts shall be governed by these regulations. If the lending occurred before August 20, 2019, refer to the plaintiff’s lawsuit. Four times the quoted interest rate on the annual loan market determines the upper limit of the protected interest rate."
An industry insider told The Paper, “If the lending behavior occurred before August 20, 2019, the upper limit of the protected interest rate can be determined by referring to four times the quoted interest rate on the one-year loan market at the time of the plaintiff’s lawsuit. According to the LPR in July this year, this is definitely not a problem in private lending cases."
"These are actually two concepts. The first sentence is about the application of law, and the latter sentence is about the selection of the LPR standard under the premise of applying the law." Liu Xinyu told The Paper.
Controversy 2: Does the new judicial interpretation apply to financial institutions?
"The Supreme Law clearly stipulates that financial institutions are not applicable." Dong Ximiao said.
However, Liu Xinyu stated that although the second paragraph of Article 1 of the New Judicial Interpretation clearly excludes the application to financial institutions, it does not mean that financial institutions can lend at an interest rate exceeding four times the one-year LPR.
For financial borrowing disputes, although the court cannot directly apply the relevant provisions of the new judicial interpretation, in the process of hearing financial borrowing disputes, it may still adjust the interest rate with reference to the relevant provisions of the new judicial interpretation on the upper limit of interest rates.
He pointed out that the Supreme People’s Court issued the "Several Opinions on Further Strengthening of Financial Trial Work" (Fafa [2017] No. 22) issued on August 4, 2017: "The borrower of the financial loan contract shall be the same as the lender. If the claimed interest, compound interest, penalty interest, liquidated damages, and other expenses are too high, and are significantly deviated from the actual loss, requesting a reduction in the total amount exceeding 24% of the annual interest rate should be supported to effectively reduce the financing of the real economy Cost." The "Minutes of the National Court Civil and Commercial Trial Work Meeting" compiled by the Second Civil Division of the Supreme People's Court also pointed out that "the total cost of financial borrowing should obviously be lower than the upper limit of the private borrowing interest rate." In previous judicial practice, Most of them use an annual interest rate of 24% as the upper limit of the interest rate of financial institutions.
"Based on this, if we proceed from the legislative intent to reduce the financing cost of the real economy, even if the new judicial interpretation excludes the application of licensed financial institutions, licensed financial institutions should carry out business activities with reference to the upper limit of interest rate protection in the new judicial interpretation." He says.
The above-mentioned industry insider said: "It is expected that the court will make such a ruling."
He said that the Supreme Court had related precedents, and the following courts must have applied this precedent.
The Supreme People’s Court (2017) Judgment No. 927 mentioned that the upper limit of financing fees of financial institutions should also refer to the upper limit of the private lending interest rate of 24% per annum in the “Regulations of the Supreme People's Court on Several Issues Concerning the Application of Laws in the Trial of Private Lending Cases”.
The industry insider said that from the perspective of judicial practice, the interest standard of financial institutions does not exceed that of private lending is a relatively common perception that the court has drawn from the perspective of social justice rather than financial supervision.
This is more common outside the financial supervision system, and I believe it will continue in future judicial practice.
Chen Wen, director of the Digital Economy Research Center of the School of Finance, Southwestern University of Finance and Economics, said that the judicial protection of formal finance used to refer to private lending, but after China's interest rate marketization, the upper limit of judicial protection of formal finance should also be adjusted.
Otherwise, there will be a problem: using the form of loan assistance to turn private lending into formal financial lending, there is a relatively large room for judicial protection arbitrage, which will also lead to a large number of private financial risks, and formal financial risks will also increase. Big.
What is the impact?
If the upper limit of judicial protection of private lending interest rates also applies to licensed financial institutions, what will be the impact?
Liu Xinyu believes that in addition to the loss of some profits, (licensed institutions refer to the upper limit of judicial protection of private lending interest rates) have relatively limited impact on the business development of licensed financial institutions, but may increase the number of licensed financial institutions to carry out collection work for stock overdue loans resistance.
"Reducing financing costs is the general trend. It may promote the adjustment of the product structure of licensed financial institutions, strengthen the screening of cooperative institutions such as loan aid institutions, increase investment in financial technology and other aspects, reconstruct the risk control system, and better serve the real economy ." Liu Xinyu said.
Chen Wen believes that the impact on corporate business is not too great, but it has a greater impact on the retail financial business of individuals in formal finance, especially the credit card business of consumer finance companies and banks.
Dong Ximiao pointed out that the new judicial interpretation does not apply to financial institutions and financial lending behavior, which is clear and correct.
However, the new judicial interpretation may have a significant impact on financial business, which may affect the willingness and ability of financial services to small and micro enterprises and residents to a certain extent.
Dong Ximiao believes that although the upper limit on interest rates of financial institutions has been liberalized, the judicial interpretation on private lending only applies to private lending. However, in judicial practice, some local courts have determined that there is no upper limit on the interest rate of financial institution loans in accordance with the central bank’s rules, and some local courts have Private lending interest rate ceilings are used to restrict financial lending behavior, resulting in a "dual track system" of interest rate ceiling control policies.
In addition, after the judicial ceiling on private lending interest rates has been significantly lowered, if the lending rate of financial institutions is higher than 4 times the LPR, financial institutions will also face greater moral pressure.
Specifically, Dong Ximiao said that the new judicial interpretation will have a greater impact on some small and medium-sized financial institutions such as city commercial banks, rural commercial banks, private banks, consumer finance companies, and financial businesses such as credit cards.
Small and medium-sized financial institutions have narrow sources of debt and high capital costs, so lending rates are often higher than those of large financial institutions.
In recent years of innovative Internet loans, especially Internet joint loans, financial institutions have high customer acquisition costs, operating costs, and risk costs, and involve multiple parties. At present, the interest rate of some credit products is higher than 4 times LPR.
Due to the long interest-free period of the credit card business, the upper limit of the overdraft interest rate is five ten thousandths of a daily interest rate, which is equivalent to 18.25% per annum, which also exceeds 4 times LPR.
"In fact, the new judicial interpretation provides more protection for borrowers, while protection for lenders is relatively insufficient. If the legal rights of financial institutions and private lending institutions are not effectively protected, the credit resources of financial institutions may refocus on high Credit-grade customers, the supply of credit to long-tail customers may be reduced; and some lending institutions voluntarily withdraw due to legal risks, aggravating the'bad money drives out good money', and the lending market may become more irregular." Dong Ximiao said.
Dong Ximiao suggested that the Supreme People’s Court could issue guidance and meeting minutes on issues related to the inapplicability of new judicial interpretations to financial institutions, unify adjudication rules across the country, and strengthen trial guidance to local courts to reduce comprehension and enforcement. Different standards have caused difficulties for financial institutions and better safeguard judicial justice.
At the same time, strengthen the judicial protection of the legal rights and interests of financial institutions and private loan capital.
The Paper, trainee reporter Ye Yinghe