Online lending rules that you can bank on

Draft rules to standardize the online lending business of commercial banks have been issued by the China Banking and Insurance Regulatory Commission (CBIRC), the country's top banking and insurance regulator.

Online lending activities, which have experienced fast growth over the past few years, function as an important supplement to traditional credit. It can serve customers difficult to reach via conventional channels through big data and other advanced technology, the commission said.

Banks of different sizes have conducted online lending in various ways and to different degrees. The industry also has problems such as a lack of risk management, inadequate protection of consumers’ privacy as well as insufficient monitoring of fund usage, according to the commission.

To promote steady and healthy development of online lending, the rules require commercial banks' online loans to be small in amounts and short in term. Credit lines for personal consumption by a single household should not exceed 200,000 yuan (US$28,275).

Banks should strengthen supervision of fund usage and make sure that money is not used for the purchase of housing and repayment of mortgages, or invested in stocks, bonds, futures and asset management products.

To better regulate the joint loan market, which boasted a size of 2 trillion yuan as of October 2019, commercial banks are not allowed to entrust all key business operations such as loan issuance as well as principal and interest recovery to their cooperative institutions, except if they jointly underwrite loans.

The measures, though still in the stage of soliciting public opinion, are trying to strike a balance between inclusive innovation and prudent regulation, said Shanghai Shuhe Information Technology. 

As a fintech firm focusing on consumer credit, it said the measures will benefit the digital transformation of traditional financial institutions and boost the development of online retail banking. Also, it will usher in more opportunities for financial technology platforms with strong technical capabilities. 

An example of this is the explosive growth of contactless finance during the COVID-19 pandemic, it said.

Su Xiaorui, senior researcher at Madai Research Institute, noted the policy will deliver a far-reaching impact on cooperation among banks, insurers, guarantee companies and other marketplace lending institutions and will be beneficial to the protection of the rights and interests of consumers.