State Administration of Financial Regulation: The maximum amount of consumer loans issued by consumer finance companies shall not exceed RMB 200,000

According to the Financial Associated Press on December 18, the State Administration of Financial Supervision and Administration revised the "Measures for the Administration of Consumer Financial Companies (Draft for Comments)", which is now open to the public for comments. According to the Consultation Paper, a consumer finance company that is in good operating condition and meets the requirements may apply to the State Administration of Financial Supervision and Administration to operate some or all of the following RMB businesses: (1) asset securitization business, (2) fixed income securities investment business, (3) consulting services related to consumer finance, and (4) other businesses approved by the State Financial Supervision and Administration Administration.

The Consultation Paper clarifies that when a consumer finance company grants a consumer loan to a borrower, it shall ensure that the borrower has genuine and reasonable consumer needs and sufficient repayment ability. The maximum credit line of the borrower's loan shall not exceed RMB 200,000.

The State Administration of Financial Supervision and Administration solicited public comments on the Measures for the Administration of Consumer Financial Companies (Draft for Comments).

Since its revision and promulgation, the Measures for the Administration of Pilot Projects for Consumer Finance Companies (Decree No. 2 of 2013 of the China Banking Regulatory Commission) have played an important role in leading consumer finance companies to adhere to the functional positioning of professional consumer credit and promoting the fundamental role of consumption in the economy. In recent years, with the development and changes of the economic and financial situation in the mainland, the business model and risk characteristics of the consumer finance company industry have undergone significant changes, and the current measures can no longer meet the high-quality development and regulatory needs of consumer finance companies. In order to thoroughly implement the spirit of the Central Financial Work Conference, comprehensively strengthen financial supervision, optimize financial services, and prevent and resolve risks, the State Administration of Financial Supervision revised and formed the Measures for the Administration of Consumer Financial Companies (Draft for Comments) (hereinafter referred to as the "Draft for Comments"). The main revisions are as follows:

The first is to raise access standards. Raise the standards for assets, operating income and other indicators of major investors, as well as the minimum shareholding ratio requirements, to encourage shareholders to actively play a supporting role and effectively assume shareholder responsibilities, increase the shareholding ratio of investors with experience in consumer finance business management and risk control, and better play the role of such investors in compliance and risk control, and raise the minimum registered capital requirements for consumer finance companies to enhance their risk resilience.

The second is to strengthen the supervision of business classification. Distinguish between basic business and special business scope, cancel non-main business and non-essential business, and strictly supervise business at different levels. Appropriately broaden financing channels and enhance shareholders' liquidity support capabilities.

The third is to strengthen the supervision of corporate governance. Fully implement the regulatory regulations and institutional requirements on corporate governance, shareholder equity, related party transactions and information disclosure issued by the State Administration of Financial Supervision in recent years, and clarify the regulatory requirements for party building, "three committees and one layer", shareholder obligations, salary management, related party transactions, information disclosure and other aspects in combination with the organizational form and equity structure of consumer finance companies.

Fourth, strengthen risk management. Clarify regulatory requirements for consumer finance companies in areas such as credit risk, liquidity risk, operational risk, information technology risk, and reputational risk management, optimize and add some regulatory indicators, and improve market exit mechanisms.

Fifth, strengthen the protection of consumer rights and interests. Consolidate the main responsibility of consumer protection of consumer finance companies, improve and improve various mechanisms for consumer protection work, strengthen the standardized management of cooperative institutions, and practice the political and people's nature of finance.

At present, the Draft for Comments has been officially released to the public for comments. Based on feedback from all walks of life, the State Administration of Financial Supervision will further revise and improve the Consultation Paper and release it in due course.

The State Administration of Financial Supervision and Administration answers questions from reporters on the Measures for the Administration of Consumer Financial Companies (Draft for Comments).

In order to thoroughly implement the spirit of the Central Financial Work Conference, further strengthen the supervision of consumer financial companies, prevent financial risks, optimize financial services, and promote the high-quality development of the industry, the State Administration of Financial Supervision revised and formed the Administrative Measures for Consumer Financial Companies (Draft for Comments) (hereinafter referred to as the "Draft for Comments"). The responsible persons of the relevant departments and bureaus of the State Administration of Financial Supervision answered reporters' questions on relevant issues.

1. What is the background of the revision of the Consultation Paper?

Since its revision and promulgation, the Measures for the Administration of Pilot Projects for Consumer Finance Companies (Decree No. 2 of 2013 of the China Banking Regulatory Commission) have played an important role in leading consumer finance companies to adhere to the functional positioning of professional consumer credit and promoting the fundamental role of consumption in the economy. After years of development, the business model and risk characteristics of the consumer finance company industry have undergone significant changes, and the current measures can no longer meet the high-quality development and regulatory needs of consumer finance companies. At the same time, in recent years, the State Administration of Financial Supervision has issued a series of regulatory systems and regulations in terms of corporate governance, equity management, and consumer rights protection.

2. What are the main revisions to the Consultation Paper?

The Consultation Paper consists of 10 chapters and 79 articles, and the revisions mainly involve optimizing access policies, highlighting hierarchical business supervision, strengthening corporate governance, strengthening risk management, focusing on the protection of consumer rights and interests, standardizing the management of cooperative institutions, and improving the market exit mechanism.

The first is to raise access standards. Raise the standards for assets, operating income and other indicators of major investors, as well as the minimum shareholding ratio requirements, to encourage shareholders to actively play a supporting role and earnestly assume shareholder responsibilities, increase the shareholding ratio of investors with experience in consumer finance business management and risk control, and better play the role of compliance and risk control of such investors, and raise the minimum registered capital requirements for consumer finance companies to enhance their risk resilience. The second is to strengthen the supervision of business classification. Distinguish between basic business and special business scope, cancel non-main business and non-essential business, and strictly supervise business at different levels. Appropriately broaden financing channels and enhance shareholders' liquidity support capabilities. The third is to strengthen the supervision of corporate governance. Fully implement the regulatory regulations and institutional requirements on corporate governance, shareholder equity, related party transactions and information disclosure issued by the State Administration of Financial Supervision in recent years, and clarify the regulatory requirements for party building, "three committees and one layer", shareholder obligations, salary management, related party transactions, information disclosure and other aspects in combination with the organizational form and equity structure of consumer finance companies. Fourth, strengthen risk management. Clarify the regulatory requirements for consumer finance companies in areas such as credit risk, liquidity risk, operational risk, information technology risk, and reputational risk management, optimize and add some regulatory indicators, and improve the market exit mechanism. Fifth, strengthen the protection of consumer rights and interests. Consolidate the main responsibility of consumer protection of consumer finance companies, improve and improve various mechanisms for consumer protection work, strengthen the standardized management of cooperative institutions, and practice the political and people's nature of finance.

3. Why does the Consultation Paper raise the minimum shareholding requirement for major investors of consumer finance companies?

The Consultation Paper raises the shareholding requirement for major investors of consumer finance companies from no less than 30% to no less than 50%. Main considerations: First, from the perspective of regulatory practice in recent years, increasing the shareholding ratio of major investors is conducive to consolidating shareholder responsibilities, enhancing shareholders' willingness to participate in the company's operation, giving better play to the advantages of shareholder resources, and promoting shareholders to actively play a supporting role. Second, it is conducive to improving the efficiency of decision-making and avoiding the problem of corporate governance failure and imbalance due to the relative dispersion of equity.

IV. What are the adjustments to the business scope of consumer finance companies in the Consultation Paper?

The Consultation Paper optimizes and adjusts the business scope of consumer finance companies, and focuses more on their main responsibilities and main businesses. On the one hand, it distinguishes between basic business and special business. Seven businesses, including "issuance of personal consumption loans" and "issuance of non-capital bonds", will be included in the basic business, and four businesses, including "asset securitization business", "fixed-income securities investment business" and "consumer finance-related consulting services", will be included in the special business. On the other hand, non-main and non-essential businesses will be abolished. In view of the high degree of professionalism in insurance sales and the large number of related complaints and disputes involved, consumer finance companies basically did not carry out such business, so the business of "agency sales of insurance products related to consumer loans" was cancelled.

5. What new regulatory indicators have been added to the Consultation Paper?

Based on the needs of risk prevention and control, consumer finance companies cooperate with financing guarantee companies, insurance companies and other institutions as a means of risk mitigation for loans. However, some consumer finance companies have long relied too much on the development of this model, relaxed the substantive review of the borrower's credit qualification level, lacked independent risk control capabilities, and also faced the risk that the guarantee company would not be able to compensate. In addition to paying the interest on the loan, the borrower also needs to pay a guarantee fee, which indirectly pushes up the overall interest rate of the loan. The Consultation Paper stipulates that the balance of the guarantee credit enhancement business of a consumer finance company shall not exceed 50% of the total loan balance of the company, and a certain period of rectification and transition will be granted in the future. In addition, consumer finance companies are required to have a leverage ratio of no less than 4% to limit blind expansion.

6. What are the considerations in the Consultation Paper in terms of protecting financial consumers?

Consumer finance companies mainly serve long-tail customers such as low- and middle-income customers, and the Consultation Paper adds two special chapters on "Protection of Consumer Rights and Interests" and "Management of Cooperative Institutions" to further strengthen the protection of consumer rights and interests. On the one hand, the main responsibility of consumer protection of consumer finance companies should be consolidated. It is required to incorporate the protection of consumer rights and interests into corporate governance, establish and improve the consumer protection work mechanism, establish a consumer rights protection committee, improve the consumer protection information disclosure mechanism and personal information protection system, and strengthen the management of consumer suitability. On the other hand, strengthen the restraint and management of cooperative institutions. Consumer financial companies are required to strengthen the management of the access and concentration of cooperative institutions, conduct continuous management and evaluation of cooperative institutions, clarify the prohibitive provisions of cooperative institutions, and avoid infringement of the legitimate rights and interests of consumers due to non-standard collection by cooperative institutions, especially collection agencies;