New Loan Overall Financing Costs Capped at 20%?

On October 29, reports emerged that multiple consumer finance companies recently received window guidance from regulators requiring that the overall financing costs for new loans must not exceed 20%. Journalists from Jiemian News learned from industry sources that several consumer finance companies have received such notice.

"Many specifics haven't been finalized yet; it's all verbal notifications without official documents. Is it a per-loan or average cost cap of 20%? Is the calculation based on IRR or APR? These details aren't clear yet; we only know the general direction," a source from a consumer finance institution in central China told Jiemian News.

Another senior executive at a consumer finance company said, "It's said that regulators have an implementation timeline, roughly around mid-to-late December, and it involves no new individual loans exceeding 20%. It's window guidance, no official document, with local branches providing instructions."

An anonymous source from a consumer finance institution stated that institutions with weak risk tolerance and insufficient professional capabilities face severe survival challenges. While this process may cause short-term pain, in the long run, by enhancing the industry's overall professionalism, it will undoubtedly push the market towards a more standardized and healthy track.

"During this market cleansing process, risks are gradually spreading from the weakest, least adaptable tail-end institutions within the system to medium-sized institutions, and even upstream to banking institutions. This transmission might manifest as asset quality pressures from broken cooperation chains, loss sharing under risk-sharing mechanisms, and the tightening of the overall market credit environment, posing challenges that cannot be ignored at the current stage," the aforementioned consumer finance source further explained.