The Chinese central bank has launched strict disclosure requirements for the interest rates of loan products due to concerns that many consumers in China are being misled by disingenuous advertising practices on the part of financial sector players.
The People’s Bank of China (PBOC) issued its no. 3 directive for 2021 on 31 March, which requires that all institutional lenders clearly display the annualised interest rates for loans during all sales activities, whether they are conducted online, via mobile apps or by means public display advertising.
The directive also requires that annualised interest rates be displayed more prominently than the daily or monthly interest rates on loan contracts.
“Annual interest rates” as referred to by the PBOC directive is defined as “all loan costs for the borrower and the ratio that they actually comprise of the loan amount converted into an annualised rate,” including “all directly related fees.”
In addition to depository institutions the new rules apply to a broad range of other financial institutions in China, including automobile finance companies, consumer finance companies, micro-loan companies and online lenders.
The move from PBOC comes following increasing concern about misleading advertising practices deployed by Chinese financial institutions, including only displaying daily or monthly interest rates in promotional materials, or only displaying the interest and fees paid for a single period of instalment products.
“Interest rates are the price of loans, and the core factor for lending products,” said Dong Ximiao (董希淼), chief researcher with MUCFC, to Yicai.
“Requiring that financial institutions and internet platforms use annualised rates, and fully and accurately disclose annualised rates, helps borrowers to clearly and accurately know real rates, and make appropriate decisions on this foundation.”