"Borrow ten thousand, pay one hundred thousand"?

Illegal loan sharks should stop

[Q&A Civil Code · Statement by Case]

●Keywords

　　Illegal Usury Private Lending Rate

●Overview

　　Because loan usury has the characteristics of scattered subjects, personal value orientation, and weak risk control, some illegal usury with extremely high interest rates often have the situation that the borrower’s income growth is not enough to pay the loan interest.

In recent years, criminals have lured some college students with incorrect consumption concepts to borrow at usury, making "campus loans" a chronic disease on campus.

When the loan is delayed or cannot be repaid, the lender often uses illegal debt collection channels to impact the normal financial and social order.

In response to the problem of usury that is strongly reflected from all walks of life, the Civil Code clearly prohibits usury, and the interest rate of borrowing must not violate the relevant regulations of the country.

●Case

　　Wang borrowed 100,000 yuan from Li and issued an IOU to agree on a monthly interest of 2.5%.

On that day, Li paid the amount to Wang, and Wang paid Li a monthly interest of 4,000 yuan, for a total of 40,000 yuan.

Later, Li went to the court to demand Wang to repay the principal of the loan and the interest owed.

Upon review, the court found that the 2.5% monthly interest agreed by the parties, that is, the annual interest rate of 30%, exceeded the scope of judicial protection, so it did not support Li's request to pay interest at 2.5% of the monthly interest.

●Law

　　Lending usury is prohibited, and the interest rate of borrowing must not violate relevant national regulations.

　　If the loan contract does not stipulate the payment of interest, it shall be deemed as no interest.

　　If the loan contract is not clear about the payment of interest and the parties cannot reach a supplementary agreement, the interest shall be determined in accordance with the local or the parties’ transaction methods, trading habits, market interest rates and other factors; loans between natural persons shall be deemed to have no interest.

(Article 680)

●Experts

Li Dan (Attorney at Zhejiang Yinggao Law Firm)

Effective combat against usury requires a combination of criminal and civil

　　In recent years, “campus loans”, “routine loans”, black net loans, underground banks, etc., under the guise of micro-loans, have doubled their debts through methods such as “cutting the head interest” and rolling profits, turning small money into A huge debt that will never be paid off.

What's more, underground banks and "shadow banks" actually evade financial supervision or engage in institutional arbitrage in the name of financial innovation.

Private lending, which is intertwined with financial phenomena such as online lending, asset management plans, over-the-counter funding, asset securitization, equity crowdfunding, and private funds, has a wide range of stakeholders and complex links, which makes it more difficult to manage private lending disputes.

We must regulate private lending activities from the legal level to ensure the steady and healthy development of private lending.

　　Article 680 of the Civil Code means that the Civil Code clearly says "no" to the chaotic usury in private lending in legal form.

The upper limit of judicial protection for borrowing interest rates has also been adjusted accordingly.

　　The Decision of the Supreme People's Court on Amending the Provisions on Several Issues Concerning the Application of Laws in the Trial of Private Lending Cases (hereinafter referred to as the “New Regulations”), which came into effect on August 20, 2020, adjusted the upper limit of judicial protection of private lending rates ——The upper limit of judicial protection for private lending interest rates is determined based on the standard that the People's Bank of China authorizes the National Interbank Funding Center to release four times the one-year loan market quote rate (LPR) published on the 20th of each month.

　　In judicial practice, the lending and borrowing rules before the release of the "New Regulations" were the two-line annual interest rate of 24% and 36%, and the local courts did not have a unified judicial judgment standard.

　　Judging from the literary interpretation of the "New Regulations", the lender’s acceptance and possession of interest exceeding 4 times the LPR constitutes an improper gain. The borrower claims to require the return of the previously paid interest exceeding 4 times the LPR, and the lender shall pay Return.

　　In addition, the "New Regulations" also set limits on professional lending behavior.

Among the five situations where a loan contract is deemed invalid, “a lender who has not obtained the qualifications for lending in accordance with the law provides loans to unspecified social objects for profit” should be deemed invalid.

　　Driven by high profits, loan sharks are also an important cause of criminal offences. There are many shadows of loan sharks in illegally absorbing public deposits, fund-raising fraud, and criminal cases involving crimes involving gangs.

Effectively cracking down on illegal usury behavior requires a combination of criminal and civilian, and the use of criminal methods fully reflects the determination of legal governance.

(Interview and collation by our reporter Chen Huijuan)