On August 20, 2020, the Supreme People's Court issued the newly revised provisions of the Supreme People's Court on Several Issues concerning the application of law in the trial of private lending cases, which made major changes to the relevant contents. The judges of the first intermediate people's Court of Beijing, in combination with the trial practice, have brought us a detailed interpretation in order to benefit from the understanding of the new judicial interpretation.

1、 Establish an upper limit of four times the one-year LPR

Interest rate is the core issue of private lending regulation. In this revision, the original upper limits of 24% and 36% are adjusted to four times the market quoted interest rate (LPR) of one-year loan. Based on the latest one-year LPR released on August 20, 2020, which is four times of 3.85%, the upper limit of judicial protection of private lending interest rate is 15.4%, which is significantly lower than 24% and 36%, which is consistent with the actual level of China's current economic and social development, and also reserves a certain space for the healthy and stable development of private lending market. At the same time, the original fixed interest rate ceiling standard is changed to the floating interest rate ceiling standard, which increases the adaptability of the interest rate ceiling and conforms to the direction of interest rate marketization reform; The standard setting of four times of LPR also inherits the historical tradition of interest rate regulation and conforms to the practice and common expectation of private lending market.

2、 "Two lines and three areas" is adjusted to "one line and two areas"

The original provisions divided the "two lines and three areas" of private lending interest rates: the two lines refer to 24% and 36%; The three zones are divided into judicial protection zone, natural debt zone and invalid zone according to the two lines. The new regulations directly take four times of the quoted interest rate of one-year loan market as the upper limit, forming "one line and two areas": the first line refers to four times of the quoted interest rate of one-year loan market; The two zones are judicial protection zones and invalid zones divided according to the first line. The original intention of the natural debt area is to achieve a balance between mandatory legal norms and party autonomy. However, from the perspective of implementation effect, the 12% interest rate difference space in the natural debt area actually belongs to the category of private relief that is not protected by law, which may objectively lead to violent debt collection, so it is deleted in this revision.

3、 Cancel the standard of annual interest rate of 6% without agreement

Since how to calculate the loss during the period of fund occupation is a key issue in judicial practice and concerns the practical interests of the parties, Article 29 of the original provisions "if the lender claims that the borrower shall pay the interest during the period of fund occupation at an annual rate of 6% from the date of overdue repayment, the people's court shall support" has established the standard of annual interest rate of 6%. In this amendment, the above clause is adjusted to "where neither the interest rate within the borrowing period nor the overdue interest rate is agreed, and the lender claims that the borrower shall bear the liability for breach of contract for overdue repayment from the date of overdue repayment, the people's court shall support it", making the calculation of loss more comprehensive in a case.

4、 Increase and improve the ineffectiveness of professional lending and usury lending

First, increase the invalid types of professional lending. As early as in the minutes of the civil and commercial trial work meeting of the national courts (hereinafter referred to as the minutes of the Ninth People's court), it was clearly stipulated that "the private lending activities of legal persons who have not obtained the lending qualification according to law and non legal organizations or natural persons who have taken private lending as their business shall be deemed invalid according to law." The revised new provisions add one of the five cases in which the people's court finds that the loan contract is invalid, that is, adding that "a lender who has not obtained the loan qualification according to law and provides loans to unspecified objects in society for the purpose of profit" is invalid.

Second, improve the recognition of the invalidity of re lending. On the one hand, in the original provisions, the "taking credit funds from financial institutions and transferring them to the borrower at high interest rates, and the borrower knew or should have known" in the case of invalid contracts was revised to "taking loans from financial institutions for re lending", which relaxed the recognition standard of invalidity. On the other hand, the amendment of the original third paragraph to "the re lending of funds obtained by borrowing from other profit-making legal persons, raising funds from the employees of the unit, or illegally taking deposits from the public" is invalid, further highlighting the negative evaluation of the law on the re lending behavior and taking a clear-cut stand to protect the financial service to the real economy.

Answers to frequently asked questions

Q1. is the upper limit of private lending interest rate 15.4%?

Answer: not accurate. The upper limit of private lending interest rate this time adopts the floating interest rate mechanism, which is 4 times the one-year loan market quoted interest rate (LPR). The one-year loan market quotation interest rate refers to the one-year loan market quotation interest rate issued monthly by the National Interbank Funding Center authorized by the people's Bank of China from August 20, 2019. According to the latest one-year LPR released by the National Interbank Funding Center authorized by the people's Bank of China on August 20, 2020, the three times of 3.85% is 15.4%. Therefore, at present, private lending interest rate has entered a new floating cycle based on LPR.

Q2. what is the traceability of the new regulations?

A: according to Article 32 of the new provisions, "after the implementation of these Provisions, the people's court shall apply these Provisions to the new cases of private lending disputes of first instance accepted by the people's court. If the lending behavior takes place before August 20, 2019, the upper limit of the protected interest rate can be determined by referring to four times of the one-year loan market quotation interest rate at the time of the plaintiff's lawsuit." Therefore, taking August 20, 2020 as the boundary, the accepted cases will continue to apply the original provisions in principle, and the newly accepted cases will apply the new provisions. Considering that the original benchmark loan interest rate of the people's Bank of China has been canceled since August 20, 2019, if the loan behavior occurs before August 20, 2019, the upper limit of the protected interest rate can be determined by referring to four times of the one-year LPR when the plaintiff files a lawsuit.

Q3. what are the changes in the invalid types of private loan contracts?

Answer: first, the invalidity of professional lending has been added, that is, "the lender who has not obtained the lending qualification according to law and provides loans to unspecified objects in the society for the purpose of profit" is invalid. As for the recognition standard of professional lenders, the Supreme People's court "authorizes the higher people's court or the authorized intermediate people's court in the places where private lending is more active to formulate specific recognition standards according to the actual situation of the region" in the minutes of the nine people's court. Second, those who obtain loans from financial institutions by borrowing from other profit-making legal persons, raising funds from their own employees, or illegally taking deposits from the public are deemed invalid, and the element of "the borrower knows or should know in advance" is deleted.

In summary:

This revision has changed the practice of setting the upper limit of judicial protection in the form of "two lines and three zones" and fixed interest rate based on 24% and 36%, and directly took four times of the one-year loan market quotation interest rate (LPR) issued by the National Interbank Funding Center authorized by the people's Bank of China on the 20th of each month as the standard to form a de facto "one area, two lines" and floating interest rate to set the upper limit of judicial protection, and The increase and improvement of the effectiveness of usury lending contracts fully demonstrates the mission and responsibility of the people's courts under the current complex and severe situation.