Five Industry Associations Issue Self-Regulatory Rules Requiring Clear Disclosure of Total Personal Loan Costs with Mandatory Reading Time

Five major Chinese financial industry associations have jointly issued the Self-Regulatory Norms for Explicit Disclosure of Comprehensive Financing Costs in Personal Loan Business (hereinafter referred to as the "Self-Regulatory Norms"). The associations involved include:

• National Internet Finance Association of China
• China Banking Association
• China Trustee Association
• China Finance Companies Association
• China Microfinance Association

This industry self-regulatory document serves as supporting implementation rules for the Provisions on Explicit Disclosure of Comprehensive Financing Costs in Personal Loan Business (hereinafter referred to as the "Provisions"), which took effect on August 1 this year. It translates the principled requirements set by regulators into unified and operational execution standards, further promoting transparency in interest rates and fees for personal loans and addressing market pain points such as hidden charges and misleading marketing practices.

Mandatory Reading Time Set

Compared with the Provisions implemented since August 1, the Self-Regulatory Norms first refine the calculation methods for comprehensive financing costs and constraints on promotional language.

Key Requirements on Calculation and Disclosure

• Lenders must convert all interest and fees borne by borrowers under normal performance conditions into an annualized level, item by item, using the internal rate of return method, in accordance with the People's Bank of China Announcement ([2021] No. 3).
• The sum of these items constitutes the borrower's annualized comprehensive financing cost.
• Forms such as "daily interest rate" or "monthly fee rate" shall not be used as substitutes.

Operational Standards

At the operational level, strict time standards are clarified:

• When processing personal loan business online, lenders must display a standardized comprehensive financing cost disclosure table to borrowers via a separate pop-up window.
• A mandatory reading time must be set, sufficient for borrowers to fully understand the comprehensive financing cost situation.
• The mandatory reading time shall, in principle, be no less than 10 seconds.

Unified Disclosure Template

While the Provisions required institutions to prepare comprehensive financing cost disclosure tables, they did not mandate a uniform format. The Self-Regulatory Norms have released accompanying examples of standardized disclosure tables covering various scenarios and different types of personal loans. These tables unify the required elements, including:

• Loan principal
• Loan interest
• Charging entities
• Annualized comprehensive financing cost under normal performance
• Fees under default conditions
• Overdue penalty interest
• Misappropriation penalty interest

Liu Bin, Director of the Financial Research Office at the China (Shanghai) Pilot Free Trade Zone Research Institute, told Securities Daily reporters:

"The unified standardized disclosure template significantly reduces the room for institutions to make discretionary adjustments or engage in disguised misleading practices, allowing borrowers to intuitively and clearly compare financing costs across different products."

Tian Lihui, Professor of Finance at Nankai University, added:

"The Provisions established the basic institutional framework for explicit disclosure of comprehensive financing costs in personal loan business. However, given the significant differences in business models among banks, trusts, microfinance companies, and internet platforms, the document could not cover all operational details. The Self-Regulatory Norms refine the rules and address practical shortcomings, translating principled requirements into unified and operational execution standards."

Strengthening Institutions' Primary Responsibilities

Relying on the standardized disclosure mechanism, the Self-Regulatory Norms further strengthen the primary responsibilities of lending institutions and clarify the boundaries of rights and responsibilities along the loan facilitation chain.

Lender as Primary Obligated Party

Personal internet loans involve multiple parties, including lending institutions, loan facilitation platforms, and credit enhancement agencies. In past operations, disputes often led to situations where each party shifted blame to others. The Self-Regulatory Norms explicitly designate the lender as the obligated party for disclosure work, bearing the primary responsibility.

When lenders conduct personal loan business through partnered internet platform enterprises, they may entrust the platform to display the comprehensive financing cost of personal loans to borrowers based on the principle of "ease of reaching borrowers," but this does not alter the lender's primary responsibility.

Lou Feipeng, a researcher at Postal Savings Bank of China, told Securities Daily reporters:

"This provision helps effectively reinforce the lender's primary responsibility and clarify the boundaries of rights and responsibilities regarding the explicit disclosure of comprehensive personal loan costs within the loan facilitation chain. As the obligated party for disclosure work, the lender bears the primary responsibility. Even if the display of comprehensive financing costs is entrusted to an internet platform, it does not change the lender's primary responsibility, thereby effectively closing loopholes where platforms drive traffic, institutions lend money, and parties 'pass the buck' when issues arise."

Self-Regulatory Management System

Furthermore, the Self-Regulatory Norms emphasize that respective industry associations should collaborate, based on their respective scopes of duty, to build a self-regulatory management system with:

• Clear division of labor
• Coordinated linkage

They should strengthen self-regulatory management of comprehensive financing cost disclosures, enhance classified guidance, urge member units to strictly implement relevant regulatory provisions and self-regulatory requirements, standardize business operations, and maintain a healthy development order for the industry. Self-regulatory inspections will also be conducted as needed.

Liu Bin believes that while the Provisions define the market bottom line for the industry, the Self-Regulatory Norms focus on unifying operational standards and solving practical challenges. The two sets of systems complement each other and will drive the personal loan industry away from rough competition characterized by script-based marketing and information asymmetry, towards a benign development pattern centered on compliant operations and high-quality services.

Impact on Borrowers

For the majority of borrowers, the right to know of financial consumers will be significantly enhanced.

Lou Feipeng told reporters:

"Requiring explicit disclosure of comprehensive financing costs in personal loan business means that all interest and fees are converted into an annualized comprehensive financing cost according to regulations and publicly disclosed. Borrowers can intuitively compare the true costs of different credit products, reducing chaotic hidden charges and lowering financial consumption disputes. At the same time, institutions are prohibited from charging any fees beyond the explicitly disclosed costs, effectively safeguarding borrowers' right to fair transactions."

Liu Bin stated that in the long run, the continued advancement of reforms toward transparent interest and fee structures will help reduce financial consumption disputes, guide personal credit business back to its fundamental purpose, and better protect the legitimate rights and interests of financial consumers.