"In recent years, private lending has been very active, and the situation where small and micro enterprises are deeply involved in private lending is very common. The number of private lending disputes cases accepted by the People's Courts has continued to rise," Qi Qi, president of the Zhejiang Provincial Higher People's Court, revealed on March 6 when reviewing the government work report that in the just passed 2011, the courts across the country accepted 608,477 private lending dispute cases, an increase of 38.27% over 2010, involving a total amount of 114.3 billion yuan.
Qi Qi said to the reporter that private lending has low cost and high efficiency, greatly expanding the financing channels for small and micro enterprises, but it also has characteristics such as hidden transactions, risks that are not easy to control, and intertwining with criminal activities such as illegal fundraising. This can easily trigger regional financial risks and affect social stability. He suggested that relevant laws and regulations should be formulated as soon as possible to make private lending visible, sunny, and legal, becoming a part of China's establishment of a market-oriented large financial system.
The number of private lending dispute cases continues to rise
Qi Qi introduced to the reporter that from 2008 to 2011, the number of private lending cases accepted by Zhejiang courts showed an overall upward trend. Especially in 2008 during the outbreak of the financial crisis, the most noticeable sharp rise in the number of cases was observed, with 72,332 cases accepted, an increase of 60.56% compared to 2007; 88,925 cases were accepted in 2009, with a slightly slower growth rate; 87,741 cases were accepted in 2010, even slightly decreasing year-on-year; and in 2011, there were 93,067 cases, increasing by 6.07% compared to 2010.
Qi Qi introduced that from the cases accepted by Zhejiang courts, the profit-making characteristics of private lending have become increasingly obvious. Traditional private lending generally occurs between friends and relatives, mostly used for living consumption. Nowadays, it is more often used for production and operation, such as for enterprise fixed asset renewal, expansion of production and operation, investment project development, or solving liquidity fund shortages. Due to the difficulty for small and micro enterprises to finance, interest rates in the private lending market continue to rise. In places like Wenzhou, the annual interest rate can even reach as high as 180%. To avoid the rule that "interest exceeding four times the bank's concurrent loan interest rate will not be protected," lenders often adopt practices such as pre-deducting interest, where the actual execution interest rate is higher than the agreed interest rate. These "yin-yang contracts" have made it difficult for courts to recognize facts.
Qi Qi introduced that due to the attractiveness of usury, a large number of professional lenders have appeared in some places. Some investment companies, consulting companies, pawnshops, guarantee companies, and other intermediary agencies have also entered the private lending sector, making the scattered flow of private lending behavior tend towards organization and openness. Some bank employees, tempted by high profits, also act as financiers for both sides of private lending, taking advantage of management loopholes to manipulate bank credit funds into private lending to earn interest differentials. Due to broken capital chains and financing issues, some entrepreneurs and lenders flee to evade debts, triggering chain lawsuits and mass petitioning events, putting great pressure on courts in case trials and maintaining social stability.
Formulate Lender Regulations to Make Private Lending Transparent
Qi Qi told reporters that to adapt to the new situation of market-oriented financial reform, legislative bodies should strengthen coordination, and relevant departments should quickly formulate lender regulations or other laws and regulations to standardize commercial private lending relationships. He believes that the main issues that the lender regulations should address include: the functional positioning and division of responsibilities of the People's Bank of China, the China Banking Regulatory Commission, and local governments in standardizing and supervising private financing activities. Clarify the nature of profit-making private lending, distinguishing it from life consumption-based private lending. At the same time, regulations should be made regarding the qualifications of borrowers, loan amounts, interest rates, guarantees, registration filings, and sources of funds. Once the lender regulations are issued, they should mainly adjust commercial private lending relationships. For life consumption-based private lending relationships, adjustments should still be made according to the General Principles of Civil Law and the Contract Law.
Qi Qi explained that according to current laws and judicial interpretations, loans between enterprises are considered invalid civil legal acts. Some enterprises bypass the law by entering the private lending field under personal names with corporate funds. Therefore, legislation should incorporate inter-enterprise fund adjustment activities into the scope of private lending, relaxing restrictions and allowing the legitimate existence of inter-enterprise loans under certain conditions within a certain range.
Qi Qi believes that the interest rate standards for private lending activities should be clarified at the legislative level. He introduced that Article 6 of the "Several Opinions of the Supreme People's Court on Handling Loan Dispute Cases" issued in 1991 stipulates that the interest rate for private lending shall not exceed four times the interest rate of the same type of bank loan, and any excess part will not be protected. This regulation has been implemented for more than twenty years and is far from adapting to the development changes of the situation, not only inconsistent with the progress of our country's interest rate marketization reform, but also increasingly questioned by all parties. Some experts believe that the general interest rate protection standard of "less than four times the benchmark interest rate of the same period and type of bank loans" lacks clear legal basis. He suggests that through legislation, the upper limit standard for private lending interest rates should be appropriately raised, or the interest rate standards for private lending activities in different regions or situations should be further detailed. The regulation of interest rate protection standards for private lending by legislation should conform to the direction of interest rate marketization reform, fully considering the actual imbalance in economic and financial development across the country, and also help the people's courts legally restrain unstandardized private lending activities with tendencies toward usury.