Regulations on Application of Laws to Certain Issues for Hearing of Private Lending Cases (“Regulations”) will become effective on 1 September 2015

Previously, due to the “General Rules for Loans” and relevant regulations, the validity of the private lending, especially the private lending between enterprises, is questionable. With the development of the needs of capital flow, in order to regulate the private lending, the Supreme Court has released the Regulations recently. The Regulations has comprehensively prescribed the aspects of private lending, such as how to define a private lending, the validity of the relevant contracts, the liabilities of the P2P platform, interest rate and so on. The highlights include:

To clarify the legal liabilities of P2P platform

The provider of a P2P platform shall only provide the intermediate service, and it shall not provide any guarantee.

If the provider of a P2P platform has expressed that it would provide guarantee by web, advertisement or other media, or there are other evidence could prove so, the court would support the lender for requiring the provider to provide the guarantee.

To recognize the validity of the lending among enterprises conditionally

The loan contract will be held valid while the borrower borrowed from other corporates or its employees for the purpose of production or operating.

Exception: the loan contract belongs to the circumstances as prescribed in Article 52 of the “Contract Law”, or Article 14 of the “Regulations” shall be deemed as invalid.

To prescribe the consequence of a fixed interest rate

If the agreed interest rate is more than 36% per year, the excess interest is invalid, the borrower could require the lender to return.

If the agreed interest rate is less than 24% per year, the lender shall be entitled to require the borrower to pay all the interest.

If the agreed interest rate is between 24% and 36% per year, the court would not support the interest above 24% per year, however, if the borrower has paid such interest voluntarily, then the court would not support the borrower for requiring the lender to return.