Background

The 2024 “3.15” Consumer Rights Day Gala, themed “Building Trust Together, Sharing Security,” highlighted several pressing issues in consumer finance. Notably, it exposed deceptive practices by the Tongcheng Finance APP regarding gift card transactions. Consumers were offered instalment payment options to purchase gift cards, which were later recycled via an internal marketplace for cash conversion. This process involved inflated prices, unreasonable bundling of goods and services, and ultimately led consumers to bear significantly higher repayment risks than the credit amount used.

These issues underscore the dangers of unregulated financial lending in the consumer finance market. However, consumer finance remains a critical financial sector, particularly as internet finance platforms have driven its digitalisation. This rapid development necessitates an upgraded regulatory framework to ensure market stability and consumer protection.

On 18 April 2024, the Administrative Measures for Consumer Finance Companies (hereinafter referred to as the “Measures”) came into effect, replacing the 2013 Pilot Administrative Measures for Consumer Finance Companies. The Measures introduce significant updates to capital structures, governance mechanisms, supervision, and market exit frameworks, while dedicating new chapters to institutional management and consumer rights protection. The Measures reflect both the state’s robust support for consumer finance market development and a commitment to stricter regulatory oversight and consumer protection.

I. Regulatory Highlights

(A)Strengthened Business Classification and Hierarchical Supervision

1. Differentiation Between Core and Specialised Business

Article 15 defines core business activities as follows:

• (i) Issuance of personal consumer loans;

• (ii) Acceptance of deposits from shareholders, their subsidiaries, or group affiliates;

• (iii) Borrowing from domestic financial institutions;

• (iv) Borrowing from foreign financial institutions as shareholders;

• (v) Issuance of non-capital bonds;

• (vi) Interbank lending;

• (vii) Consumer finance-related advisory and agency services;

• (viii) Other business approved by the National Financial Supervision and Administration Bureau (NFSA).

Article 16 reserves specialised business, such as:

• (i) Asset securitisation;

• (ii) Fixed-income securities investments;

• (iii) Other NFSA-approved business activities.

The Measures require consumer finance companies to categorise activities into core or specialised business. While core business focuses on primary financial services, specialised business involves advanced financial products, requiring administrative approval from the NFSA. This distinction reinforces resource allocation to core functions and aligns with the 2023 Administrative Licensing Measures for Non-Banking Financial Institutions, which allow only well-performing companies with favourable regulatory ratings to engage in asset securitisation (ABS).

2. Requirements for Internet Loans

Article 21 mandates compliance with existing laws and regulations governing internet lending. Although the Measures do not enumerate specific requirements, they integrate with a broader legal framework, including the Interim Measures for Commercial Bank Internet Loans Management and related guidelines. Internet loans pose diverse legal risks due to low entry barriers and inconsistent platform quality. The Measures provide a clearer legal foundation for internet lending activities and enhance regulatory enforceability.

II. Strengthening Management of Cooperative Institutions

Consumer finance companies collaborate with diverse entities, such as e-commerce platforms, third-party payment providers, and guarantors. The Measures establish a comprehensive pre-, mid-, and post-cooperation framework to regulate these partnerships:

1. Pre-Cooperation Management

• Article 44 requires consumer finance companies to maintain a whitelist of cooperative institutions, categorised by risk level and compliance standards.

• Article 45 mandates entry mechanisms to evaluate partners rigorously.

• Article 46 prohibits collaborations with entities lacking lending or guarantee qualifications, or those failing insurance regulations.

2. Mid-Cooperation Management

• Article 47 obligates companies to sign agreements outlining responsibilities, profit-sharing, and consumer rights. Cooperation cannot be subcontracted.

• Article 48 enforces diversification to avoid over-reliance on single institutions.

• Article 49 requires continuous evaluation of partners, with mandatory annual assessments.

3. Post-Cooperation Management

• Article 50 specifies termination mechanisms for institutions violating legal or operational requirements.

These provisions align with existing laws, such as the Non-Bank Payment Institution Supervision Regulation (effective 1 May 2024) and the Financing Guarantee Company Supervision Regulation.

III. Enhancing Consumer Rights Protection

The Measures establish a dedicated chapter on consumer rights protection, focusing on corporate accountability and debt collection oversight:

1. Corporate Responsibility

• Article 51 requires companies to integrate consumer rights protection into governance frameworks, including creating a Consumer Protection Committee.

• Article 52 emphasises suitability assessments to match financial products with consumer risk profiles.

• Article 53 mandates transparent disclosure of loan terms, fees, and liabilities.

• Article 54 ensures brand distinction between finance companies and cooperative institutions.

2. Debt Collection Oversight

• Articles 55–56 prohibit unauthorised collection methods and ensure personal data protection.

• Article 57 demands compliance for outsourced collection, including performance reviews and agreements outlining legal and ethical standards.

• Article 58 requires comprehensive records of collection activities, preserved for five years.

• Article 59 promotes financial literacy among consumers to encourage rational borrowing.

These measures mitigate risks of privacy violations and abusive practices, referencing guidance such as the Guidelines on Credit Card Debt Collection and Internet Finance Post-Loan Collection Risk Control Guidelines.

IV. Conclusion

The Administrative Measures for Consumer Finance Companies mark a milestone in balancing market development with consumer protection. They align regulatory standards with market realities, transitioning oversight from entity-based to behaviour- and function-based frameworks. However, ambiguities remain, such as transitional arrangements and administrative licensing processes. Further clarification through supplementary regulations is essential to ensure comprehensive implementation and support the high-quality development of China’s consumer finance market.