China’s Banking Regulator Targets New Consumer Loans that “Encourage Bad Social Habits” and Lead to “Excessive Indebtedness”

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The China Banking and Insurance Regulatory Commission (CBIRC) has targeted consumer loan products that result in the “excessive” indebtedness of Chinese consumers.

On 5 October CBIRC issued the “Notice on Matters in Relation to Servicing the Regular Production of the Coal Power Sector and Orderly Circulation of Commodities Markets to Ensure Stable Economic Operation” (关于服务煤电行业正常生产和商品市场有序流通保障经济平稳运行有关事项的通知).

The Notice prohibits Chinese banks from providing a range of consumer loan products to consumers that are referred to variously as “cemetery loans” (墓地贷), “beauty loans” (美丽贷) and “bride price loans “(彩礼贷).

CBIRC said that the products “breach sound public order and expedite poor social habits,” and as a consequence the authority will “firmly strike against these various forms of fake innovation.”

The move comes after Zou Yan (邹澜), an official from the Chinese central bank’s financial markets department, issued a warning at the start of April of risk in relation to bride price loans and cemetery loans.

“The various banks are using the banner of so-called financial innovation to cause households to become excessively indebted, breaching the threshold for social public order and sound habits, and departing from the original purpose of finance serving the real economy” said Zou at a press conference held on 1 April.

“The actual character of these loans is that they are household consumer loans, that use manufactured gimmicks for promotional purposes to obtain customers.

“This also reflects inadequacies in the services of small and medium-sized banks, as well as some of the difficulties faced by financial development.”

The Notice further calls for Chinese banks to prevent financial consumers from “using cards to take care of cards and using loans to pay off loans, which consequently leads to excessive indebtedness.”

The Chinese central bank previously called for a ban on “excessive financial products sales that lead to excessive indebtedness” at its 2021 work meeting, as well as “strictly investigating illegal behaviour that harms the rights and interests of financial consumers.”

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