Will lowering the upper limit of the judicial protection of private lending interest rates lead to the fact that the interest rate market will survive in name only? Will private lending interest rate control encourage the rampant private illegal usury, leading to a situation where "bad money drives out good money"?
Recently, the Supreme People’s Court and the National Development and Reform Commission jointly issued a report entitled "Opinions of the Supreme People’s Court and the National Development and Reform Commission on Providing Judicial Services and Guarantees for Accelerating the Improvement of the Socialist Market Economic System in the New Era" (hereinafter referred to as the "Opinions") Documents to regulate the private financial market.
The "Opinions" propose to promptly revise and improve the judicial interpretations on the legal issues applicable to the trial of private lending cases, and significantly reduce the upper limit of judicial protection for private lending rates.
This expression has aroused great attention from the theoretical circle and the market for a while. CBN reporters interviewed many industry experts and learned that although the above-mentioned documents are not judicial interpretations or administrative regulations, but a kind of policy intention, the signal is strong and the purpose is to protect and promote private finance and serve the development of the real economy. However, many experts also expressed concern about this: a further decline in the judicial protection interest rate standard may result in small, medium and micro enterprises having no money to borrow. At the same time, it may also promote the further rampant illegal usury of private loans, which should be done with caution.
If the upper limit of judicial protection of private lending interest rates is lowered, what will be the impact?
As early as 2015, the Supreme Law promulgated the "Regulations on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases," which clarified the "two lines and three districts" approach to regulate private lending behavior.
"Two lines" are two red lines of 36% and 24%; "three areas" refer to the areas divided by two red lines: less than 24% are judicial protection areas; 24%~36% are natural debt areas; more than 36% are invalid District, it is illegal lending.
The "Opinions" proposed that the upper limit of judicial protection for private lending rates should be drastically reduced, and the effectiveness of usury on-lending and illegal lending should be resolutely denied, maintaining the order of the financial market, and serving the development of the real economy.
A key issue is that since the promulgation of the “two-tier three-zone” rule in 2015, the private lending interest rate has not really fallen below 24%.
"Further decline in the judicial protection interest rate standard will, on the one hand, allow the funds that are'disliked trouble' and'risky' to withdraw from the market. On the other hand, it will make those remaining on the market more willing to take risks and bolder funds to place more demands on debtors. , Making the part of the debt iceberg below the water surface bigger and more dangerous.” said Miao Yinzhi, an associate professor at the Central University of Finance and Economics School of Law.
For a long time, private lending mainly refers to the conduct of financing between natural persons, between natural persons and legal persons or other organizations, and between legal persons or other organizations, using currency or other securities as the subject matter. Financial institutions and their branches established with the approval of financial regulatory authorities to engage in loan business, grant loans and other related financial services, are not included in the scope of private lending.
However, according to the clear guiding spirit of the "Several Opinions on Further Strengthening of Financial Judicial Work" issued by the Supreme People’s Court in 2017, the borrower of a financial loan contract uses the interest, compound interest, penalty interest, liquidated damages and other expenses claimed by the lender at the same time. If it is too high and is significantly deviated from the actual loss, requesting a reduction in the amount exceeding 24% of the annual interest rate should be supported to effectively reduce the financing cost of the real economy. This means that the upper limit of financing fees of financial institutions is also subject to the constraint of 24% annual interest rate.
"If the judicial interpretation of private lending is adjusted and the upper limit of judicial protection of private lending interest rates is lowered, the upper limit of loan interest rates of financial institutions will also be adjusted accordingly." Peng Bing, a professor at Peking University Law School, told reporters.
Peng Bing suggested that the control of interest rates could be the control of consumer lending and commercial lending, rather than the distinction between private lending and formal financial institutions, which would be relatively reasonable.
Is it feasible to set the upper limit with reference to LPR?
There are rumors that the Supreme Law is considering revising the judicial interpretation of private lending or will refer to the one-year loan market quote rate (LPR) and revise the upper limit value based on 4 times the central bank's LPR quote.
For a time, the focus of market debate focused on "whether the legal interest rate of private lending should be set with reference to LPR" and "if referring to LPR, what multiple is appropriate?
Some people believe that, in the context of the important results of the LPR reform, private lending rates refer to LPR quotations, which is a market-oriented choice for lending rates.
However, some experts doubt it.
Chen Wen, director of the Digital Economy Research Center of the School of Finance of Southwestern University of Finance and Economics, told reporters that if the upper limit of judicial protection of private lending interest rates is lowered and the limit is imposed in accordance with the multiple of LPR, it is not appropriate from the perspective of supervision and monetary policy. "What we have been promoting is the market-oriented reform of interest rates, removing the upper and lower limits of interest rates, and letting the market automatically play a role. From the perspective of private lending, financial regulatory authorities have no basis for setting private lending interest rates." Chen Wen said.
According to the "Several Opinions Regarding the Trial of Loan Cases by the People's Court" issued by the Supreme Court in 1991, the interest rate of private loans can be appropriately higher than the bank's interest rate. The local people's courts can determine the actual situation in the region, but the highest shall not exceed the bank's interest rate. 4 times the interest rate of similar loans (including the interest rate). If this limit is exceeded, the excess interest will not be protected.
Since then, the central bank has also strictly regulated private lending in its notice on banning underground banks and cracking down on loan sharks. One of the contents is that the private individual lending interest rate is negotiated and determined by the borrower and the lender, but the negotiated interest rate shall not exceed 4 times the same level of loan interest rate (excluding floating) of the financial institution announced by the central bank for the same period. Those exceeding the above standards shall be defined as usury borrowing.
The rumor that the highest legal interest rate for private lending is set at 4 times the LPR quoted price follows this. According to the latest LPR quotation, the 1-year variety is quoted at 3.85%. Based on this calculation, the upper limit of judicial protection for private lending rates is about 15%.
Regarding this calculated value, experts believe that it is not reliable. "The marketization of interest rates has been in place for many years, and private lending rates can be capped, but the method, limit, and height of the cap can be flexible, instead of setting numbers based on subjective ideas, and setting several times the LPR is not a scientific approach." Said Zhao Lei, deputy director of the Commercial Law Research Office of the Institute of Law of the Chinese Academy of Social Sciences.
Chen Wen believes that at present, some banks' credit cards and consumer finance companies have exceeded the 15% interest rate limit, let alone private lending. If the private lending interest rate is controlled within 15%, the private lending market may no longer exist, but it will force those destructive private lending that do not expect to seek judicial support to develop in secret.
Chen Wen suggested that the benchmark lending rate on which the upper limit of judicial protection of private lending rates is based should be in line with the overall market situation, and the multiples should be flexible. However, from a judicial perspective, the flexibility of interest rates and the relative stability of legal rules cannot sometimes be considered at the same time.
In addition to interest rates, what are the key points of legal regulation?
In the past few years, the supervision and control of violent collections and other Internet financial market chaos has also provided opportunities for some borrowers who maliciously evaded debt. The market is also worried that this move will further lead to the generalization of debt evasion.
Many experts agree that while strengthening financial supply at the front end, supervision should also pay attention to balance and regulate the legal positioning of the debt collection industry at the back end.
"The focus of legal regulation should be debt collection behavior, not interest rates." Miao Yinzhi believes that one of the motivations for advocating lowering the upper limit of judicial protection of private lending interest rates is to curb the industrialization of usury loans and even the criminalization, but reduce the judicial protection of private lending interest rates. The upper limit cannot reduce the demand of the borrower, and cannot increase the credit of the borrower, and naturally it will not lower the market level of interest rates.
Miao Yinzhi said that to solve the problem of difficult and expensive financing for small, medium and micro enterprises, multi-pronged and comprehensive management is required.
In addition, comprehensively determining the level of interest rates based on factors such as the status quo of regional economic development and market activity has also become one of the recommendations that can be referred to. "Interest rate levels in different regions should be distinguished. At least the eastern and central and western regions have different levels of economic activity, and interest rates should also be different. The national unified standard is definitely not appropriate," said Peng Bing.
Author: Duchuan