In order to thoroughly implement the spirit of the Central Financial Work Conference, further strengthen the supervision of consumer finance companies, prevent financial risks, optimize financial services, and promote high-quality industry development, the Financial Regulatory Administration has revised and formed the "Measures for the Administration of Consumer Finance Companies (Draft for Public Comments)" (hereinafter referred to as the "Draft for Comments"). The heads of competent departments within the Financial Regulatory Administration addressed questions from the press regarding the revised draft.

1. What is the background of the revision of the "Draft for Comments"?

Since the revision and release of the "Measures for the Pilot Administration of Consumer Finance Companies" (China Banking Regulatory Commission Order No. 2 of 2013), it has played a crucial role in guiding consumer finance companies to focus on their core function of consumer credit, and in promoting the fundamental role of consumption in the economy. After years of development, both the business model and risk characteristics of the consumer finance industry have undergone significant changes, making the current regulations inadequate for meeting the needs of high-quality development and effective supervision of consumer finance companies. Additionally, in recent years, the Financial Regulatory Administration has introduced a series of regulatory policies on corporate governance, equity management, consumer protection, and other aspects. The "Draft for Comments" further supplements and improves relevant content, aligning with the current regulatory framework.

2. What are the main revisions in the "Draft for Comments"?

The "Draft for Comments" consists of 10 chapters and 79 articles, with revisions mainly focusing on optimizing entry policies, emphasizing tiered business supervision, strengthening corporate governance, enhancing risk management, focusing on consumer protection, regulating the management of cooperative institutions, and improving the market exit mechanisms.

●Higher entry standards: The revised measures increase the assets, revenue, and minimum shareholding requirements for major investors, ensuring shareholders actively contribute to the company and bear their responsibilities. It also enhances the required shareholding proportion for investors with management experience in consumer finance and risk control, thereby improving compliance and risk management. The minimum registered capital requirement for consumer finance companies is also increased to strengthen their risk resilience.

●Strengthened tiered business supervision: The new measures distinguish between core and specialized business areas, eliminating non-core and non-essential activities, and implementing strict tiered supervision. Financing channels will be appropriately expanded to support liquidity.

●Strengthened corporate governance supervision: The regulations require full implementation of recent supervisory rules on corporate governance, equity, related-party transactions, and disclosure, and address the specific features of consumer finance companies, such as their organizational structure and shareholder system. Specific rules for party-building, shareholder duties, compensation management, related-party transactions, and information disclosure are clearly defined.

●Strengthened risk management: The revised draft specifies supervision requirements for managing credit, liquidity, operational, technology, and reputational risks. It optimizes and adds new regulatory indicators and improves the market exit mechanism.

●Enhanced consumer protection: The revised measures place greater emphasis on consumer protection, requiring consumer finance companies to take primary responsibility for consumer rights. The draft also stresses the importance of establishing comprehensive consumer protection systems and enhancing the management of cooperative institutions to safeguard consumer interests.

3. Why does the "Draft for Comments" raise the minimum shareholding ratio for major investors in consumer finance companies?

The "Draft for Comments" increases the required shareholding ratio for major investors from no less than 30% to no less than 50%. The key reasons are as follows:

●Recent regulatory practices have shown that raising the shareholding ratio of major investors helps to ensure shareholder responsibility, encourages greater participation in company operations, leverages shareholder resources more effectively, and facilitates shareholders in supporting the company.

●A higher shareholding ratio helps improve decision-making efficiency and avoids governance issues caused by too dispersed shareholding.

4. What adjustments have been made to the business scope of consumer finance companies in the "Draft for Comments"?

The "Draft for Comments" refines the scope of business activities to focus more on core functions. On the one hand, the draft distinguishes between basic and specialized business activities, incorporating seven activities, including "personal consumer loans" and "issuance of non-capital bonds," into the basic business category, while placing four activities, including "asset securitization" and “fixed-income securities investment business”, and "consulting services related to consumer finance," under specialized business. On the other hand, non-core and non-essential activities are eliminated. For instance, due to the high level of specialization and frequent complaints, the business of "selling insurance products related to consumer loans" has been removed.

5. What new regulatory indicators have been added in the "Draft for Comments"?

To address risk prevention and control, some consumer finance companies have long been overly reliant on partnerships with guarantee companies and insurers, using these arrangements to mitigate loan risks. However, this practice sometimes leads to a lack of adequate credit checks on borrowers, insufficient independent risk management, and a potential risk where guarantee companies may fail to fulfill their obligations. In addition to paying loan interest, borrowers are also required to pay guarantee fees, which indirectly increases the overall loan interest rate. The "Draft for Comments" stipulates that the balance of guarantee-enhanced business cannot exceed 50% of a company's total loan balance, with a transition period provided for adjustments. Additionally, consumer finance companies are required to maintain a leverage ratio of no less than 4%, limiting excessive expansion.

6. What considerations does the "Draft for Comments" include for protecting financial consumers?

Consumer finance companies mainly serve low- and moderate-income groups. The "Draft for Comments" introduces two new chapters specifically on "consumer rights protection" and "cooperative institution management," which further enhance the protection of consumer interests. On the one hand, it reinforces the primary responsibility of consumer finance companies for consumer protection by requiring the integration of consumer rights protection into corporate governance, the establishment of a sound consumer protection mechanism, the creation of a Consumer Rights Protection Committee, and the improvement of consumer protection information disclosure mechanisms and personal data protection systems. On the other hand, it strengthens the regulatory oversight of cooperative institutions, requiring consumer finance companies to improve the entry standards management, concentration management, and ongoing monitoring and evaluation of cooperative institutions. It sets out prohibitive provisions for cooperative institutions to prevent violations of consumer rights, especially by non-compliant collection agencies. Furthermore, consumer finance companies are required to take responsibility for managing collection practices, establish performance evaluation and reward/punishment mechanisms for collection agencies, and ensure that outsourcing of collection activities complies with the law, thereby effectively safeguarding the legitimate rights and interests of financial consumers.