On August 20, the Supreme Peoples Court issued a new regulation defining the judicial protection upper limit of private lending interest rate as four times of the one-year loan market quotation interest rate (LPR). Compared with the previous regulation of two lines and three districts based on 24% and 36%, the upper limit of judicial protection is greatly reduced.
After the promulgation of this regulation, there has been heated discussion in the market, among which one of the focuses is whether licensed financial institutions apply the new rules. Although according to the regulations, the provisions are not applicable to the disputes arising from the granting of loans and other related financial businesses to financial institutions and their branches established with the approval of the financial regulatory authorities, since the promulgation of the new regulations two months ago, there have been divergences in the relevant judgments of the local courts. Some have referred to the definition standard of 4 times LPR, while others still follow the previous one 24% of the red line..
For example, two judgments disclosed recently by the judicial document website show that the peoples Court of Pidu District of Chengdu City and the peoples Court of Yuelu District of Changsha City of Hunan Province have referred to the standard of 4 times LPR in deciding the cases of Sichuan Jincheng consumer finance, Hunan Changyin May 8 consumer finance and personal financial loan contract disputes.
Specifically, in the case of Hunan Changyin May 8 consumer finance and jiemou financial loan dispute, the peoples Court of Yuelu District, Changsha City, Hunan Province ruled that the defendant should repay the plaintiff Hunan Changyin May 8 consumer finance loan principal and penalty interest within seven days from the effective date of the judgment. However, the penalty interest shall be temporarily calculated until August 9, 2020, and thereafter the penalty interest shall be calculated according to the standard of four times the one-year LPR published by the national interbank lending center every month.
According to the contract between the two parties, the calculation standard of the default interest paid by the borrower to the lender is 1.5 times of the daily interest rate of the loan. In this regard, the peoples Court of Yuelu District, Changsha City, Hunan Province said: the interest rate standard of penalty interest in this case has exceeded the protection upper limit of one-year loan market quotation interest rate. The court calculates the penalty interest by referring to four times of the one-year loan market quotation interest rate when the plaintiff sues, and the defendant shall pay the plaintiff a penalty interest of 3944.11 yuan (temporarily until August 9, 2020). After that, the penalty interest shall be calculated according to the standard of four times of the one-year loan market quotation rate published by the national interbank lending center every month until the date of actual repayment. The court will not support the excess claimed by the plaintiff.
In addition, in the financial loan dispute between Sichuan Jincheng consumer finance and Lu, the Pidu District Peoples Court of Chengdu also ruled that the interest, penalty interest, compound interest and liquidated damages of Sichuan Jincheng consumer finance petition of the plaintiff shall be calculated as agreed by both parties in the contract until the date of payment of principal and interest, but the interest, penalty interest, compound interest and liquidated damages shall not exceed the loan announced by the national interbank lending center in the same period The market quotation rate (i.e. one-year LPR) is limited to four times.
Earlier, in early September, a judgment document disclosed by the peoples Court of Ouhai District, Wenzhou City, Zhejiang Province, aroused strong market attention. According to the judgment, in the case of financial loan contract dispute between Wenzhou Branch of Ping An Bank and Hong, the peoples Court of Ouhai District, Wenzhou City, ruled that the loan, interest and overdue interest payable by Hong Mou to the bank should be calculated at four times the market quoted rate (LPR) of one-year loan in the same period, rather than the 2% monthly interest rate claimed by Wenzhou Branch of Ping An Bank, that is, 24% annualized.
However, the judicial document was soon removed from the Internet. At that time, the peoples Court of Ouhai District, Wenzhou City, told reporters from the first finance and Economics Bureau that a press conference might be held later to explain the situation, but as of the time when the reporter sent the paper, there was no relevant information.
Although the cases referring to the 4 times LPR judgment are frequent, the original provisions still exist. When the plaintiff and the defendant paid the interest rate of 24% of the principal of the contract with the peoples Bank of China in Haizhou, Jiangsu Province, the court ruled that the plaintiff should pay the interest of the individual loan at the interest rate of 24% in Haizhou city of Jiangsu Province.
It can be seen that the current local court has not reached a consensus on whether to refer to 4 times LPR in litigation involving loans from financial institutions. Liu Xinyu, a partner of Zhonglun law firm, told the first finance and economics reporter that the controversial point in judicial practice is whether the financial lending business of licensed financial institutions is applicable to the new regulations on private lending, but not whether it can be directly applicable rather than referring to the interest rate regulations of private lending. Because according to the new regulations, financial institutions do not directly apply the provisions.
Should financial institutions apply the new rules?
As for whether financial institutions should apply by reference, in fact, this problem has a long history, and it is not caused by the revision of the new regulations on private lending. It has existed in the period of 24% and 36% of two lines and three grades. Liu Xinyu told reporters that the fundamental reason behind the differences lies in the different understanding of the interest rate of financial lending business among local courts.
One view is that according to the latest requirements of the central bank on the loan interest rate of financial institutions, the financial loan interest rate is not set on the line. Moreover, the loan business of financial institutions does not belong to private lending, and the relevant provisions of private lending are not applicable. The interest rate of financial lending should be subject to the provisions of the loan contract.
Wang Yongqin, a professor at Fudan Universitys School of economics, told reporters at first finance and economics that generally speaking, bank loan contracts have many dimensions, including interest rate, mortgage rate, term, restrictive terms, etc., and no two loan contracts are exactly the same. Therefore, the one size fits all management method for interest rate will easily lead to the increase of contract disputes and bring difficulties to judicial enforcement. In addition, interest rate is the compensation of risk. If the interest rate is regulated, there will be other compensation methods for loan, which will make the regulation more difficult.
The other view is that although financial lending does not apply to the provisions of private lending interest rate, compared with private lending, the loan interest rate of financial institutions should be more strictly restricted, and the risk prevention and tolerance ability of private lending are lower than that of financial lending. According to the market positioning of financial lending and private lending and the market rule of consistent risk and interest, the interest rate of financial lending should not be higher than that of private lending. Therefore, the upper limit of interest rate of financial lending should also refer to and apply to the interest rate of private lending.
At an online forum recently held by Fudan Ping An macroeconomic research center, Shan Suhua, President of the first comprehensive trial court of Shanghai financial court, said that if we only restrict the interest rate of private lending and completely liberalize the interest rate of financial lending, it may eventually make the interest rate of financial lending generally higher than that of private lending. From the perspective of judicial practice, although the current policy has always stressed that finance should serve the real economy, the lending rate of financial institutions is rising continuously. If the overdue interest rate is added together, the lending interest rate of many financial institutions has even exceeded 24%.
The two views have led to different judgments in judicial practice. However, in the past, the criteria for whether to refer to the applicable standards were 24% and 36% , but now the criteria for whether to refer to the applicable standards have been replaced by 4 times LPR. Liu Xinyu said.
However, after the red line is reduced, most of the loan businesses may suffer losses compared with the past if they want to continue reference application. A senior banking practitioner told the first finance and economics reporter that from the perspective of financial institutions, the pricing of loan interest rate is usually divided into two parts, one is the cost of capital, the other is risk weighting. After the interest rate protection cap is greatly reduced, some loan businesses will also be restricted. If a project has a capital cost of 5.4% and a risk of 10%, it may be difficult for the project to obtain financial support in the future.
Du Yaozhong, chief expert of China Construction Bank Research Institute, gave an extreme example at the above-mentioned online forum. He said that if Chinas interest rate market in the future is like that in foreign countries, LPR will be infinitely close to zero, then all private lending and financial lending will be basically impossible to do according to the new rules. Du Yaozhong suggested that the definition of usury interest rate should still be left to the monetary policy authorities to make decisions.
At present, the consensus in the industry is that relevant departments need to further clarify whether financial institutions should refer to the application of the new rules. The Supreme Peoples court has issued a notice before, stipulating that the borrower of a financial loan contract, on the ground that the interest, compound interest, penalty interest, liquidated damages and other expenses claimed by the lender at the same time are too high and deviate significantly from the actual loss, should be supported to effectively reduce the financing cost of the real economy. At that time, the red line was set at 24%. Now, the direct way to resolve the differences is to send a similar notice. Liu suggested.
However, due to the fact that the current detailed rules are not clear and there are differences in judicial practice, the first financial reporter understands that most financial institutions and licensed consumer finance companies are in a wait-and-see state. For insurance, some institutions have cut lending rates, and in the process, they are facing the pressure of a significant decline in business profits. The above-mentioned senior banking practitioners told reporters that for non bank licensed financial institutions, the comprehensive cost of loans may exceed 15% if the capital cost, customer acquisition cost and operating cost are taken into account. According to the upper limit of 15.4%, such institutions almost have no profit margin.
There is no conflict between the new rules and the commercial bank law
According to the draft proposal, the central bank has revised the content of the interest rate mechanism, and the former commercial banks shall determine the loan interest rate in accordance with the upper and lower limits of loan interest rates stipulated by the peoples Bank of China is changed to commercial banks can independently negotiate with customers to determine deposit and loan interest rates in accordance with the relevant provisions of the peoples Bank of China.
Some people in the industry have analyzed that the amendment of this detail may affect the courts judgment, because the commercial bank law provides that banks can negotiate interest rates independently with customers instead of being subject to upper and lower limits.
However, Zhou Maohua, a financial market analyst at Everbright Bank, told reporters from China first finance and economics that although the new commercial bank law allows banks to independently agree on deposit and loan interest rates with customers, it also stipulates that banks should not take improper measures to absorb deposits and issue loans. This may mean that the amendment is still applicable to the 4-fold LPR requirement stipulated in the supreme law, and the two are not inconsistent, that is, under the framework of the supreme law, banks are encouraged to negotiate deposit and loan interest rates with their customers, so that the market can play a decisive role in the allocation of resources.
Liu Xinyu also told reporters: this amendment can not fundamentally change the problem of bank loan interest rate and 4 times LPR, but more clearly and further emphasizes the principle of interest rate marketization. Observing the judicial cases in dispute, the difference is not whether there is a upper limit on the loan interest rate of financial institutions, but that when the interest rate of financial loans is too high and exceeds the standard of private lending, the courts in different regions have different judgments on whether to refer to the application of private lending standards to adjust and reduce. This amendment to the commercial bank law will draw more attention to the principle of marketization of loan interest rates of financial institutions, Liu said However, some courts held that the market-oriented interest rate is not allowing financial institutions to seek high profits, even on the basis of market-oriented interest rate, the interest rate of financial loans should not be too high. However, at present, whether this high standard is 4 times LPR remains to be discussed. Source of this article: Guo Chenqi, editor in charge of first finance and Economics_ NBJ9931
This amendment to the commercial bank law will draw more attention to the principle of marketization of loan interest rates of financial institutions, Liu said However, some courts held that the market-oriented interest rate is not allowing financial institutions to seek high profits, even on the basis of market-oriented interest rate, the interest rate of financial loans should not be too high. However, at present, whether this high standard is 4 times LPR remains to be discussed.