On August 20, the Supreme People's Court held a press conference to release the newly revised "Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases" (hereinafter referred to as the "Provisions") and answer questions from reporters. He Xiaorong, Deputy Ministerial-level Full-time Member of the Adjudication Committee of the Supreme People's Court, Zheng Xuelin, Member of the Adjudication Committee of the Supreme People's Court and Director of the First Civil Division, and Liu Min, Deputy Director of the First Civil Division of the Supreme People's Court, attended the press conference and introduced the relevant situation. Li Guangyu, spokesperson of the Supreme People's Court, presided over the press conference.

According to He Xiaorong, according to the "Decision on Amending the " adopted by the 1809th meeting of the Adjudication Committee of the Supreme People's Court on August 18, 2020, the Supreme People's Court officially released the newly revised "Provisions" today.

Private lending refers to civil legal acts concluded between civil subjects other than financial institutions engaged in the lending business, with the lending of funds and the return of principal and interest as the main rights and obligations. For a long time, as an important part of the multi-level credit market, private lending has brought many conveniences to people's production and life with its flexible form, simple procedures, and fast financing, meeting the diversified financing needs of the society, and to a certain extent, it has also alleviated the difficulties and high costs of financing for small and medium-sized micro enterprises. In order to implement the relevant requirements of the Third Plenary Session of the 18th CPC Central Committee on financial system reform, the Supreme People's Court promulgated the "Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases" in August 2015. Since the implementation of the "Provisions", it has not only standardized private lending behavior, unified the standards for the application of law, but also solved the substantive and procedural issues in a large number of private lending dispute cases, and has received widespread attention and high recognition from domestic and foreign media. It is generally believed in all sectors of society that the judicial interpretation conforms to the trend of China's economic development, is in line with the direction of China's financial reform, and implements the relevant arrangements of the Third Plenary Session of the 18th CPC Central Committee on financial system reform, which is of far-reaching significance for accelerating the sunshine process of private lending. At the same time, we should also see that with the development and changes of the economy and society, some new situations and new problems have also emerged in private lending, such as excessively high interest rates, excessively wide scope, and blurred boundaries. Some deputies to the National People's Congress, members of the CPPCC, and representatives of entrepreneurs have repeatedly proposed to amend and improve the judicial policy on private lending. The Supreme People's Court attaches great importance to this issue, and since 2017, it has successively conducted research in Zhejiang, Jiangsu and other places on the problems existing in the implementation of the judicial interpretation of private lending, extensively listened to the opinions of private enterprises and individual industrial and commercial households, and issued the Law (2018) No. 215 "Notice of the Supreme People's Court on Properly Hearing Private Lending Cases in Accordance with the Law" in August 2018, which improved the relevant judicial policies for properly hearing private lending dispute cases and preventing and resolving various risks.

Since the beginning of this year, the COVID-19 epidemic has had a huge impact on China's economy and the world economy, and many small and medium-sized enterprises and individual industrial and commercial households in China are facing unprecedented pressure, and excessive financing costs are one of the important reasons. In order to coordinate the promotion of normalized epidemic prevention and control and the sound and healthy development of the economy and society, continuously enhance the development momentum and vitality of market players, maintain reasonable growth in the scale of social financing, and promote a significant decline in comprehensive financing costs, the Supreme People's Court, on the basis of carefully researching and extensively listening to the opinions and suggestions of representatives of the National People's Congress, members of the CPPCC, representatives of entrepreneurs, experts and scholars, and financial regulatory authorities, decided to amend the "Provisions" in accordance with the latest spirit of the "Civil Code of the People's Republic of China", mainly in the following three aspects:

Respecting the autonomy of the parties is an important principle that should be adhered to in handling private lending disputes. As a form of loan contract, private lending should adhere to the principle of voluntariness, that is, borrowers and lenders have the right to establish, change, and terminate civil legal relations according to their own wishes. The lending parties can voluntarily negotiate on the loan term, interest calculation, overdue interest, and contract termination, and voluntarily bear the corresponding legal consequences. Only by adhering to the principle of voluntariness can we give full play to the positive role of private lending in financing and activating the market. Similarly, as a civil activity engaged in by civil subjects, private lending shall not violate the mandatory provisions of laws and administrative regulations, and shall not violate public order and good customs. In the process of preliminary research and solicitation of opinions, all sectors of society have expressed great opinions on the behavior of issuing loans to the public in the name of "private lending" without the approval of financial regulatory authorities. This type of behavior is easy to be intertwined with "routine loans" and "campus loans", which seriously affects the local financial order and social stability, and seriously damages the legitimate rights and interests and life tranquility of the people. After careful study, the Supreme People's Court absorbed this opinion and added one to the five circumstances in which the people's court determines that the loan contract is invalid, that is, Article 14, Paragraph 3, "the lender who has not obtained the lending qualification in accordance with the law provides loans to unspecified objects in the society for the purpose of profit" shall be deemed invalid. The basis for the above amendment is Article 4 of the State Council's Order No. 247 of 1998, "Measures for the Prohibition of Illegal Financial Institutions and Illegal Financial Business Activities" (revised in 2011), that is, engaging in illegal lending activities without the approval of the People's Bank of China is an illegal financial business activity and falls within the scope of being prohibited in accordance with the law. In addition, in the symposium with private entrepreneurs and individual industrial and commercial households, most representatives suggested that the re-lending behavior should be strictly restricted, that is, some enterprises re-lend after obtaining loans from banks, especially a few state-owned enterprises engage in loan channel business after obtaining loans from banks, which violates the value orientation of financial services entities. After careful discussion, the Adjudication Committee of the Supreme People's Court adopted this opinion and decided to amend Article 14, Paragraph 1 of the original judicial interpretation, "obtaining credit funds from financial institutions and re-lending them to borrowers at high interest rates, and the borrower knows or should have known in advance" to Article 14, Paragraph 1 of the "Provisions", "obtaining loans from financial institutions for re-lending", which further strengthens the clear attitude of judicial assistance to financial services entities.

The interest rate of private lending is the core element in the private lending contract, and it is also an important boundary between the autonomy of the parties and state intervention. After carefully listening to the opinions of all sectors of society and soliciting the opinions and suggestions of financial regulatory authorities, the Supreme People's Court decided after discussion by the court's adjudication committee: to determine the upper limit of judicial protection for private lending interest rates based on 4 times the one-year loan market quotation interest rate (LPR) released by the National Interbank Funding Center authorized by the People's Bank of China on the 20th of each month, replacing the original "Provisions" The provision of "two lines and three districts based on 24% and 36%" significantly reduces the upper limit of judicial protection for private lending interest rates, and promotes the gradual adaptation of private lending interest rates to the actual level of economic and social development in my country. Taking the one-year loan market quotation interest rate of 3.85% released on July 20, 2020 as an example, the upper limit of judicial protection for private lending interest rates is 15.4%, which is a relatively large decrease compared to the past 24% and 36%.

There are several main reasons for significantly reducing the upper limit of judicial protection for private lending interest rates:

       First, the objective requirements of economic and social development. As my country's economy shifts from a stage of high-speed growth in the past to a stage of high-quality development, the financial and capital markets should serve advanced manufacturing and the real economy. In the medium and long term, stimulating the vitality of micro-entities such as small and micro enterprises will help promote high-quality economic development, and ultimately help the long-term sustainable development of the real economy. Private lending is inextricably linked to small and micro enterprises. Reducing the financing costs of small and micro enterprises and guiding the overall market interest rate to decline are important measures to restore the economy and protect market players.

        Second, it is an objective need to regulate private lending activities. The interest rate of private lending belongs to the scope of the parties' autonomy. Whether the lender and borrower agree on interest and how much interest is agreed upon should be based on the principle of voluntariness and completed through a loan contract. If the loan contract does not stipulate the payment of interest, it is deemed that there is no interest. If the interest agreed upon by the lender and borrower in the loan contract does not violate relevant national regulations and does not violate public order and good customs, it should be protected according to law. However, if the interest agreed upon by the parties is too high, it will not only lead to the debtor's inability to perform, but also may cause other social problems and moral hazards. Therefore, most countries in the world have set an upper limit for interest rate protection. Therefore, a substantial reduction in the judicial protection ceiling for private lending interest rates is of great significance for guiding and regulating private lending behavior.

       Third, it is necessary to ensure the stable and healthy development of private lending. Private lending, as a necessary supplement to the country's formal finance, must not violate laws or public order and good customs. In recent years, some private lending activities have circumvented financial supervision and carried out regulatory arbitrage in the name of financial innovation, and some have even been intertwined with financial phenomena such as online lending, asset management plans, over-the-counter financing, asset securitization, and equity crowdfunding, which has increased the public involvement and complexity of private lending dispute cases. In the long run, a substantial reduction in the judicial protection ceiling for private lending interest rates is conducive to the stable and healthy development of Internet finance and private lending.

        Fourth, it is an inevitable requirement for promoting interest rate marketization reform. The ideal interest rate standard should be formed spontaneously by the market. With the rapid development of Internet technology and the continuous improvement of my country's credit system, the financing costs of the entire society will inevitably gradually decrease, and the interest rate of private lending will also gradually stabilize with the expansion of national inclusive finance. Therefore, an excessively high interest rate protection ceiling is not conducive to creating an external environment for interest rate marketization reform, nor does it conform to the direction of interest rate marketization reform.

       Fifth, it is a realistic need to unify judicial adjudication standards. In recent years, approximately two million private lending dispute cases have flooded into people's courts each year. In the absence of special regulations on private lending interest rate standards in current laws or administrative regulations, and people's courts cannot "refuse to adjudicate," how to delineate the judicial protection ceiling for interest rates is a prerequisite for people's courts to handle private lending cases fairly and justly. Therefore, it is necessary to comply with the trend of economic development and revise the judicial interpretation of private lending in a timely manner to provide more specific and clear adjudication standards and relief channels for private lending disputes.

        It should be admitted that the judicial protection ceiling for private lending interest rates is not the lower the better. For a long time, the judicial protection ceiling for interest rates has been the focus of debate in all sectors of society when discussing private lending issues. An excessively high interest rate protection ceiling not only fails to achieve the purpose of protecting borrowers, but also poses credit risks and moral hazards. However, an excessively low interest rate protection ceiling may also lead to two results: First, borrowers cannot obtain sufficient credit in the market, and credit supply is tight, exacerbating the tension between supply and demand of funds. Second, private lending turns from above ground to underground, and underground banks and shadow banks may become more active. To compensate for the cost of legal risks, the actual interest rate of private lending may further increase. Therefore, maintaining the judicial protection ceiling for private lending interest rates within a relatively reasonable range is the largest common divisor formed after absorbing opinions from all sectors of society, and is more in line with the objective needs of China's current economic and social development.

Article 680 of my country's Civil Code clearly stipulates that "usury lending is prohibited, and the interest rate of loans shall not violate relevant national regulations." According to the relevant provisions of the "Law of the People's Bank of China", the various interest rates approved by the State Council and formulated by the People's Bank of China with the authorization of the State Council are statutory interest rates. The announcement and implementation of statutory interest rates shall be the responsibility of the head office of the People's Bank of China. In practice, the relevant interest rate standards formulated by the People's Bank of China are all to regulate and restrain the lending activities of financial institutions subject to national financial supervision, while the People's Bank of China has no special regulations on private lending interest rates that are not related to financial institutions. Article 2 of the "Notice of the People's Bank of China on Banning Underground Banks and Cracking Down on Usury" issued by the People's Bank of China on January 31, 2002 and implemented on the same day stipulates: "Strictly regulate private lending activities. Private individual lending activities must strictly abide by the relevant provisions of national laws and administrative regulations and follow the principles of voluntary mutual assistance and honesty and trustworthiness. In private individual lending, the lender's funds must be its own monetary funds that belong to its legal income, and it is forbidden to absorb other people's funds for re-lending. The interest rate of private individual lending shall be determined through negotiation between the lender and the borrower, but the interest rate negotiated by both parties shall not exceed 4 times the financial institution's concurrent and same-grade loan interest rate (excluding floating) announced by the People's Bank of China. Those exceeding the above standards shall be defined as usury lending behavior." With the advancement of China's financial interest rate marketization reform, the People's Bank of China has gradually liberalized the interest rate decision-making power of financial institutions, has cancelled the announcement of benchmark interest rates, and issued an announcement on August 17, 2019 to decide to reform and improve the loan market quotation interest rate (LPR) formation mechanism. The 24% interest rate determined in the original "Regulations" was calculated based on 4 times the then benchmark interest rate of about 6%. Now that the benchmark interest rate no longer exists, it is necessary to make corresponding revisions to the judicial interpretation based on the changes in my country's monetary policy regulation mechanism.

      In the process of revising this judicial interpretation, the Supreme People's Court earnestly implemented the principle of "prohibiting usury lending" in the Civil Code and made corresponding adjustments to relevant clauses.

       First, continue to implement a stricter policy of principal and interest protection. That is, if the sum of principal and interest that the borrower should pay after the expiration of the loan period exceeds the sum of the initial loan principal and the interest for the entire loan period calculated based on four times the one-year loan market quotation interest rate at the time of the contract establishment, the people's court shall not support it.

        Second, the overdue interest rate agreed upon by the parties shall not be higher than the judicial protection ceiling for private lending interest rates. That is, if the lender and borrower have an agreement on the overdue interest rate, the agreement shall prevail, but it shall not exceed four times the one-year loan market quotation interest rate at the time of the contract establishment.

       Third, the sum of the overdue interest rate, liquidated damages, and other expenses claimed by the parties shall not be higher than the judicial protection ceiling for private lending interest rates. That is, if the lender and the borrower have agreed on both the overdue interest rate and the liquidated damages or other expenses, the lender may choose to claim the overdue interest, liquidated damages, or other expenses, or may claim them all together, but the portion exceeding four times the one-year loan market quotation interest rate at the time of the contract establishment in total shall not be supported by the people's court.
 

Private lending, as a beneficial supplement to the country's formal finance, needs both regulation and protection. Faced with the current complex and severe economic situation, especially under the new development pattern of accelerating the formation of a domestic cycle as the main body and domestic and international dual cycles promoting each other, the scale and scope of the private lending market will continue to grow steadily. We must take Xi Jinping's Thought on Socialism with Chinese Characteristics for a New Era as our guide, always adhere to the new development concept, firmly grasp the strategic base point of expanding domestic demand, vigorously protect and stimulate the vitality of market entities, promote high-quality economic development, and earnestly do a good job in the "six stabilities" work, Comprehensively implement the "six guarantees" task, and provide more powerful judicial services and guarantees for coordinating epidemic prevention and control and economic and social development.

The Decision of the Supreme People's Court on Amending the Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases was adopted at the 1809th meeting of the Adjudication Committee of the Supreme People's Court on August 18, 2020, and is hereby promulgated and shall come into force on August 20, 2020.

Supreme People's Court

                                                                                          August 19, 2020

Fa Shi [2020] No. 6

Supreme People's Court

Decision on Amending the Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases

(Passed at the 1809th Meeting of the Adjudication Committee of the Supreme People's Court on August 18, 2020, and effective as of August 20, 2020)

Based on the needs of trial practice, and decided by the 1809th meeting of the Adjudication Committee of the Supreme People's Court, the "Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases" are amended as follows:

I. Modify the first item to:

“Private lending as referred to in these provisions refers to the act of financing between natural persons, legal persons, and non-legal organizations.

Disputes arising from loan-related financial business conducted by financial institutions and their branches established with the approval of financial regulatory authorities to engage in loan business shall not be subject to these provisions.

2. The second item is revised as:

When a lender files a private lending lawsuit in a People's Court, they shall provide debt instruments such as loan slips, receipts, and IOUs, as well as other evidence that can prove the existence of a lending legal relationship.

The people's court shall accept the private lending lawsuit filed by the party holding the credit certificate such as the IOU, receipt, or debt note held by the party concerned, which does not specify the creditor. If the defendant raises a fact-based defense against the plaintiff's creditor qualification, and the people's court finds that the plaintiff does not have the creditor qualification after review, it shall rule to reject the lawsuit.

3. The third item is modified as follows:

“If the lending parties have not agreed on or clearly defined the place of performance of the contract, and have not reached a supplementary agreement afterwards, and it still cannot be determined according to the relevant clauses of the contract or transaction practices, the place where the currency is received shall be the place of performance of the contract.”

4. Amend Article 5 to read:

“After a people's court files a case, if it discovers that the private lending behavior itself is suspected of crimes such as illegal fund-raising, it shall rule to reject the prosecution and transfer the clues and materials suspected of crimes such as illegal fund-raising to the public security or procuratorial organs.

If the public security or procuratorial organs do not file a case, or revoke the case after filing it for investigation, or the procuratorial organ makes a decision not to prosecute, or the people's court's effective judgment determines that it does not constitute a crime such as illegal fund-raising, and the party brings a lawsuit to the people's court again based on the same facts, the people's court shall accept it.

5. Amend Article 7 to read:

“If the basic facts of a private lending dispute must be based on the trial results of a criminal case, and the criminal case has not yet been concluded, the people's court shall rule to suspend the lawsuit.”

6. Modify Article 9 to:

A loan contract between natural persons may be deemed established under any of the following circumstances:

(1) For cash payments, from the time the borrower receives the loan;

(II) For payments made via bank transfer, online electronic remittance, etc., from the time the funds reach the borrower's account;

(III) If delivered by negotiable instrument, from the time the borrower legally obtains the rights to the negotiable instrument;

(IV) Where the lender authorizes the borrower to dispose of a specific fund account, from the time the borrower obtains actual control over the account;

(5) When the lender provides the loan in other ways agreed with the borrower and actually completes the performance.

7. Amend Article 11 to read:

"For private lending contracts concluded between legal persons, between non-legal person organizations, and between them for the needs of production and operation, unless there are circumstances stipulated in Article 52 of the "Contract Law of the People's Republic of China" and Article 14 of these provisions, the people's court shall support the parties' claim that the private lending contract is valid."

8. Article 12 is amended as follows:

"Where a legal person or a non-legal organization raises funds from its employees in the form of loans for its own production and operation, and there are no circumstances as stipulated in Article 52 of the Contract Law of the People's Republic of China and Article 14 of these provisions, the people's court shall support the validity of the private lending contract if the parties claim it to be valid."

9. Article 13 is amended as follows:

“If the borrower's or lender's lending behavior is suspected of a crime, or a judgment that has already taken effect determines that a crime has been committed, and the parties file a civil lawsuit, the private lending contract is not necessarily invalid. The people's court shall determine the validity of the private lending contract in accordance with Article 52 of the Contract Law of the People's Republic of China and Article 14 of these provisions.

If the guarantor claims that it is not liable for civil liability on the grounds that the borrower's or lender's lending behavior is suspected of a crime or a judgment that has already taken effect determines that a crime has been committed, the people's court shall determine the guarantor's civil liability in accordance with the validity of the private lending contract and the guarantee contract, and the degree of fault of the parties.

10. Amend Article 14 to:

“Under any of the following circumstances, the people's court shall determine that the private lending contract is invalid:

(1) Obtaining loans from financial institutions for on-lending;

(2) On-lending funds obtained by borrowing from other for-profit legal persons, raising funds from employees of the unit, or illegally absorbing deposits from the public;

(3) A lender who has not obtained the qualification to lend money in accordance with the law provides loans to unspecified objects in the society for profit;

(4) The lender knows or should have known in advance that the borrower is using the loan for illegal or criminal activities but still provides the loan;

(5) Violating mandatory provisions of laws and administrative regulations;

(6) Violating public order and good customs.”

11. Amend Article 16 to:

“If the plaintiff initiates a private lending lawsuit only on the basis of debt certificates such as IOUs, receipts, and promissory notes, and the defendant argues that the loan has been repaid, the defendant shall provide evidence to prove its claim. After the defendant provides corresponding evidence to prove its claim, the plaintiff shall still bear the burden of proof for the existence of the lending relationship.

If the defendant argues that the lending act has not actually occurred and can provide a reasonable explanation, the people's court shall comprehensively judge and verify whether the lending fact has occurred based on facts and factors such as the amount of the loan, the payment of funds, the economic capacity of the parties, the transaction method between the local area or the parties, transaction habits, changes in the parties' property, and witness testimony.”

12. Amend Article 17 to:

“If the plaintiff initiates a private lending lawsuit only on the basis of the transfer voucher of the financial institution, and the defendant argues that the transfer is to repay the previous loan or other debts between the two parties, the defendant shall provide evidence to prove its claim. After the defendant provides corresponding evidence to prove its claim, the plaintiff shall still bear the burden of proof for the establishment of the lending relationship.”

13. Amend Article 18 to:

“In accordance with the provisions of Article 174, Paragraph 2 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China, if the plaintiff who bears the burden of proof refuses to appear in court without justified reasons, and the existing evidence cannot confirm the main facts of the case such as the lending act, the amount of the loan, and the method of payment, the people's court shall not recognize the facts claimed by the plaintiff.”

14. Amend Article 19 to:

“When a people's court hears a case involving a private lending dispute and finds any of the following circumstances, it shall strictly examine the facts such as the cause, time, place, source of funds, method of delivery, flow of funds, and the relationship and economic status of the lending parties, and comprehensively judge whether it is a false civil litigation:

(1) The lender obviously does not have the ability to lend;

(2) The facts and reasons on which the lender's lawsuit is based are obviously inconsistent with common sense;

(3) The lender cannot submit debt certificates or the submitted debt certificates may be forged;

(4) The parties have participated in private lending lawsuits multiple times within a certain period of time;

(5) The parties refuse to appear in court to participate in the lawsuit without justified reasons, and the entrusted agent's statement on the lending facts is unclear or the statements are contradictory;

(6) There is no dispute between the parties on the occurrence of the lending facts, or the pleadings are obviously inconsistent with common sense;

(7) The borrower's spouse or partner, or other creditors of the case outsider, raise objections based on factual evidence;

(8) The parties have transferred property at a low price in other disputes;

(9) The parties improperly waive their rights;

(10) Other circumstances where there may be false private lending litigation.”

15. Amend Article 20 to:

“If it is found after investigation that it is a false private lending lawsuit and the plaintiff applies to withdraw the lawsuit, the people's court shall not approve it, and shall rule to reject its request in accordance with the provisions of Article 112 of the Civil Procedure Law of the People's Republic of China.

If litigation participants or other persons maliciously create or participate in false litigation, the people's court shall impose fines and detentions in accordance with the provisions of Articles 111, 112, and 113 of the Civil Procedure Law of the People's Republic of China; if a crime is constituted, it shall be transferred to the judicial organ with jurisdiction to pursue criminal responsibility.

If a unit maliciously creates or participates in false litigation, the people's court shall impose a fine on the unit, and may impose fines and detentions on its main person in charge or directly responsible person; if a crime is constituted, it shall be transferred to the judicial organ with jurisdiction to pursue criminal responsibility.”

16. Amend Article 21 to:

“If another person signs or seals a debt certificate, receipt, IOU, or loan contract, but does not indicate their guarantor status or assume guarantee responsibility, or it cannot be presumed that they are a guarantor through other facts, the people's court shall not support the lender's request for them to assume guarantee responsibility.”

17. Amend Article 23 to:

“If the legal representative of a legal person or the person in charge of a non-legal person organization signs a private lending contract with a lender in the name of the unit, and there is evidence proving that the borrowed funds are used by the legal representative or the person in charge for personal use, the people's court shall approve the lender's request to list the legal representative or the person in charge as a co-defendant or a third party.

If the legal representative of a legal person or the person in charge of a non-legal person organization enters into a private lending contract with a lender in their personal name, and the borrowed funds are used for the unit's production and operation, the people's court shall support the lender's request for the unit and the individual to jointly assume responsibility.”

18. Article 24 is amended as follows:

“Where the parties enter into a sales contract as security for a private lending contract, and the borrower is unable to repay the loan upon maturity, and the lender requests performance of the sales contract, the people's court shall hear the case in accordance with the legal relationship of private lending. Where a party changes its claim based on the circumstances of the court hearing, the people's court shall allow it.

After the judgment made in accordance with the legal relationship of private lending becomes effective, if the borrower fails to perform the monetary debt determined by the effective judgment, the lender may apply to auction the subject matter of the sales contract to repay the debt. The borrower or the lender shall have the right to claim the return or compensation for the difference between the proceeds from the auction and the principal and interest of the loan to be repaid.”

19. Article 25 is amended as follows:

“If the lender claims payment of interest when the lender and borrower have not agreed on interest, the people's court shall not support it.

If the interest is not clearly agreed upon between natural persons, the people's court shall not support the lender's claim for interest payment. Except for lending between natural persons, if the lending parties have not clearly agreed on the lending interest, the people's court shall determine the interest by combining the content of the private lending contract and based on local or parties' transaction methods, transaction habits, market quoted interest rates, and other factors.”

20. Article 26 is amended as follows:

“If the lender requests the borrower to pay interest at the interest rate agreed in the contract, the people's court shall support it, unless the interest rate agreed upon by both parties exceeds four times the one-year loan market quotation rate at the time the contract was established.

The 'one-year loan market quotation rate' mentioned in the preceding paragraph refers to the one-year loan market quotation rate published monthly by the National Interbank Funding Center authorized by the People's Bank of China since August 20, 2019.”

21. Article 28 is amended as follows:

“If the lender and borrower settle the principal and interest of the previous loan and include the interest in the principal of the subsequent loan and reissue the creditor's certificate, if the previous interest rate does not exceed four times the one-year loan market quotation rate at the time the contract was established, the amount stated in the reissued creditor's certificate may be recognized as the principal of the subsequent loan. The excess interest shall not be recognized as the principal of the subsequent loan.

If the sum of principal and interest that the borrower should pay after the expiration of the loan period, calculated according to the preceding paragraph, exceeds the sum of the initial loan principal and the interest calculated based on four times the one-year loan market quotation rate at the time the contract was established for the entire loan period, the people's court shall not support it.”

22. Article 29 is amended as follows:

“If the lender and borrower have agreed on an overdue interest rate, their agreement shall prevail, but it shall not exceed four times the one-year loan market quotation rate at the time the contract was established.

If there is no agreement on the overdue interest rate or the agreement is unclear, the people's court may handle it differently depending on the circumstances:

(1) If neither the interest rate within the loan period nor the overdue interest rate is agreed upon, and the lender claims that the borrower shall bear the liability for breach of contract for overdue repayment from the date of overdue repayment, the people's court shall support it;

(2) If the interest rate within the loan period is agreed upon but the overdue interest rate is not agreed upon, and the lender claims that the borrower shall pay interest on the funds occupied from the date of overdue repayment at the interest rate within the loan period, the people's court shall support it.”

23. Article 30 is amended as follows:

“If the lender and the borrower have agreed on both an overdue interest rate and liquidated damages or other expenses, the lender may choose to claim overdue interest, liquidated damages or other expenses, or may claim them all, but the people's court shall not support the portion exceeding four times the one-year loan market quotation rate at the time the contract was established.”

24. Article 31 is deleted.

25. Article 32 is changed to Article 31 and amended as follows:

“The borrower may repay the loan in advance, unless otherwise agreed by the parties.

If the borrower repays the loan in advance and claims that interest should be calculated based on the actual loan period, the people's court shall support it.”

26. Article 33 is changed to Article 32 and amended as follows:

“This provision shall apply to first-instance private lending dispute cases newly accepted by the people's court after the implementation of this provision.

If the lending behavior occurred before August 20, 2019, the upper limit of the protected interest rate may be determined with reference to four times the one-year loan market quotation rate at the time the plaintiff filed the lawsuit.

If the relevant judicial interpretations previously made by the Supreme People's Court are inconsistent with this interpretation after the implementation of this provision, this interpretation shall prevail.”

This decision shall come into force on August 20, 2020.

Supreme People's Court

Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases (Adopted at the 1655th meeting of the Adjudication Committee of the Supreme People's Court on June 23, 2015, revised in accordance with the Decision of the Adjudication Committee of the Supreme People's Court on Amending the Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases on August 18, 2020, the 1809th meeting, the revision shall come into force on August 20, 2020)

In order to correctly hear private lending dispute cases, these provisions are formulated in accordance with the provisions of the General Principles of the Civil Law of the People's Republic of China, the Property Law of the People's Republic of China, the Guarantee Law of the People's Republic of China, the Contract Law of the People's Republic of China, the Civil Procedure Law of the People's Republic of China, the Criminal Procedure Law of the People's Republic of China, and other relevant laws, in combination with trial practice.

Article 1   Private lending as mentioned in these provisions refers to the act of financing between natural persons, legal persons, and non-legal person organizations.

These provisions shall not apply to disputes arising from the issuance of loans and other related financial businesses by financial institutions and their branches that are established with the approval of financial regulatory authorities to engage in loan business.

Article 2   When a lender files a private lending lawsuit with the people's court, it shall provide debt certificates such as IOUs, receipts, and promissory notes, as well as other evidence that can prove the existence of a lending legal relationship.

If the debt certificates such as IOUs, receipts, and promissory notes held by the parties do not specify the creditor, the people's court shall accept the private lending lawsuit filed by the party holding the debt certificate. If the defendant raises a fact-based defense against the plaintiff's creditor qualification, and the people's court, after review, believes that the plaintiff does not have the creditor qualification, it shall rule to dismiss the lawsuit.

Article 3   If the lending parties have not agreed on the place of performance of the contract or the agreement is unclear, and no supplementary agreement is reached afterwards, and it still cannot be determined according to the relevant terms of the contract or transaction practices, the place where the currency is received shall be the place of performance of the contract.

Article 4   If the guarantor provides joint and several liability guarantee for the borrower, and the lender only sues the borrower, the people's court may not add the guarantor as a co-defendant; if the lender only sues the guarantor, the people's court may add the borrower as a co-defendant.

If the guarantor provides a general guarantee for the borrower, and the lender only sues the guarantor, the people's court shall add the borrower as a co-defendant; if the lender only sues the borrower, the people's court may not add the guarantor as a co-defendant.

Article 5   After the people's court files a case, if it finds that the private lending act itself is suspected of illegal fundraising or other crimes, it shall rule to reject the lawsuit and transfer the clues and materials suspected of illegal fundraising or other crimes to the public security or procuratorial organs.

If the public security or procuratorial organ does not file a case, or revokes the case after filing it for investigation, or the procuratorial organ makes a decision not to prosecute, or the people's court determines through an effective judgment that it does not constitute a crime such as illegal fundraising, and the party files a lawsuit with the people's court again based on the same facts, the people's court shall accept it.

Article 6   After the people's court files a case, if it finds clues and materials of suspected illegal fundraising or other crimes that are related to the private lending dispute case but are not the same fact, the people's court shall continue to hear the private lending dispute case and transfer the clues and materials of suspected illegal fundraising or other crimes to the public security or procuratorial organs.

Article 7   If the basic facts of the private lending dispute must be based on the trial result of the criminal case, and the criminal case has not yet been concluded, the people's court shall rule to suspend the lawsuit.

Article 8   If the borrower is suspected of a crime or an effective judgment finds him guilty, and the lender sues for the guarantor to bear civil liability, the people's court shall accept it.

Article 9   A loan contract between natural persons may be deemed established if it has one of the following circumstances:

(1) For cash payments, from the time the borrower receives the loan;

(II) For payments made via bank transfer, online electronic remittance, etc., from the time the funds reach the borrower's account;

(III) If delivered by negotiable instrument, from the time the borrower legally obtains the rights to the negotiable instrument;

(IV) Where the lender authorizes the borrower to dispose of a specific fund account, from the time the borrower obtains actual control over the account;

(5) The lender provides the loan in other ways agreed with the borrower and actually completes the performance.

Article 10   Except for loan contracts between natural persons, if the parties claim that the private lending contract becomes effective from the time the contract is established, the people's court shall support it, unless the parties agree otherwise or the laws and administrative regulations provide otherwise.

Article 11   If a private lending contract is concluded between legal persons, non-legal person organizations, and between them for the needs of production and operation, unless there are circumstances stipulated in Article 52 of the "Contract Law of the People's Republic of China" and Article 14 of these provisions, the parties claim that the private lending contract is valid, the people's court shall support it.

Article 12   If a legal person or non-legal person organization raises funds from employees within the unit through loans for the production and operation of the unit, and there are no circumstances stipulated in Article 52 of the "Contract Law of the People's Republic of China" and Article 14 of these provisions, the parties claim that the private lending contract is valid, the people's court shall support it.

Article 13   If the borrower's or lender's lending act is suspected of a crime, or an effective judgment determines that it constitutes a crime, and the parties file a civil lawsuit, the private lending contract is not necessarily invalid. The people's court shall base its decision on the "Contract Law of the People's Republic of China"

Article 52 and Article 14 of these provisions to determine the validity of the private lending contract.

If the guarantor claims that he is not liable for civil liability on the grounds that the borrower's or lender's lending act is suspected of a crime or an effective judgment determines that it constitutes a crime, the people's court shall determine the guarantor's civil liability in accordance with the validity of the private lending contract and the guarantee contract, and the degree of fault of the parties.

Article 14   The people's court shall determine that a private lending contract is invalid if it has one of the following circumstances:

(1) Obtaining loans from financial institutions for on-lending;

(2) On-lending funds obtained by borrowing from other for-profit legal persons, raising funds from employees of the unit, or illegally absorbing deposits from the public;

(3) A lender who has not obtained the qualification to lend money in accordance with the law provides loans to unspecified objects in the society for profit;

(4) The lender knows or should have known in advance that the borrower is using the loan for illegal or criminal activities but still provides the loan;

(5) Violating mandatory provisions of laws and administrative regulations;

(6) Violates public order and good customs.

Article 15   If the plaintiff files a private lending lawsuit based on debt certificates such as IOUs, receipts, and promissory notes, and the defendant raises a defense or counterclaim based on the underlying legal relationship, and provides evidence to prove that the debt dispute is not caused by a private lending act, the people's court shall hear the case according to the underlying legal relationship based on the facts of the case.

The debt agreement reached by the parties through mediation, settlement or liquidation shall not be subject to the provisions of the preceding paragraph.

Article 16   If the plaintiff only files a private lending lawsuit based on debt certificates such as IOUs, receipts, and promissory notes, and the defendant defends that the loan has been repaid, the defendant shall provide evidence to prove his claim. After the defendant provides corresponding evidence to prove his claim, the plaintiff shall still bear the burden of proof for the existence of the lending relationship.

If the defendant defends that the lending act has not actually occurred and can provide a reasonable explanation, the people's court shall comprehensively judge and verify whether the lending fact has occurred based on the amount of the loan, the payment of funds, the economic capacity of the parties, the local or the transaction methods between the parties, transaction practices, changes in the parties' property, and witness testimony.

Article 17   If the plaintiff only files a private lending lawsuit based on the transfer voucher of the financial institution, and the defendant defends that the transfer is to repay the previous loan or other debts between the two parties, the defendant shall provide evidence to prove his claim. After the defendant provides corresponding evidence to prove his claim, the plaintiff shall still bear the burden of proof for the establishment of the lending relationship.

Article 18   In accordance with the provisions of the second paragraph of Article 174 of the "Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China", if the plaintiff who bears the burden of proof refuses to appear in court without justified reasons, and the existing evidence cannot confirm the main facts of the case such as the lending act, the amount of the loan, and the method of payment, the people's court shall not recognize the facts claimed by the plaintiff.

Article 19 When trying cases of private lending disputes, the people's court shall strictly examine the facts such as the cause, time, place, source of funds, method of payment, flow of funds, relationship between the parties, and economic status to comprehensively determine whether it is a false civil action if one of the following circumstances exists:

(1) The lender obviously does not have the ability to lend;

(2) The facts and reasons on which the lender's lawsuit is based are obviously inconsistent with common sense;

(3) The lender cannot submit debt certificates or the submitted debt certificates may be forged;

(4) The parties have participated in private lending lawsuits multiple times within a certain period of time;

(5) The parties refuse to appear in court to participate in the lawsuit without justified reasons, and the entrusted agent's statement on the lending facts is unclear or the statements are contradictory;

(6) There is no dispute between the parties on the occurrence of the lending facts, or the pleadings are obviously inconsistent with common sense;

(7) The borrower's spouse or partner, or other creditors of the case outsider, raise objections based on factual evidence;

(8) The parties have transferred property at a low price in other disputes;

(9) The parties improperly waive their rights;

(10) Other circumstances where false private lending litigation may exist.

Article 20 If it is found after investigation that it is a false private lending lawsuit and the plaintiff applies to withdraw the lawsuit, the people's court shall not approve it, and shall rule to reject its request in accordance with the provisions of Article 112 of the Civil Procedure Law of the People's Republic of China.

If litigation participants or other persons maliciously create or participate in false litigation, the people's court shall impose fines and detentions in accordance with the provisions of Articles 111, 112, and 113 of the Civil Procedure Law of the People's Republic of China; if a crime is constituted, it shall be transferred to the judicial organ with jurisdiction to pursue criminal responsibility.

If a unit maliciously creates or participates in a false lawsuit, the people's court shall impose a fine on the unit, and may impose a fine or detention on its main person in charge or directly responsible person; if a crime is constituted, it shall be transferred to a judicial organ with jurisdiction to pursue criminal responsibility.

Article 21 If another person signs or affixes a seal on a credit certificate such as a IOU, receipt, or debt note, or a loan contract, but does not indicate his guarantor status or assume guarantee responsibility, or it cannot be presumed that he is a guarantor through other facts, the people's court shall not support the lender's request for him to assume guarantee responsibility.

Article 22 If a lending relationship is formed between the borrowing parties through an online lending platform, and the provider of the online lending platform only provides intermediary services, the people's court shall not support the party's request for it to assume guarantee responsibility.

If the provider of the online lending platform expressly provides guarantee for the lending through webpages, advertisements or other media, or there is other evidence to prove it, the people's court shall support the lender's request for the provider of the online lending platform to assume guarantee responsibility.

Article 23 If the legal representative of a legal person or the person in charge of a non-legal person organization signs a private lending contract with the lender in the name of the unit, and there is evidence to prove that the borrowed funds are used by the legal representative or the person in charge for personal use, the people's court shall allow the lender's request to list the legal representative or the person in charge as a co-defendant or a third party.

If the legal representative of a legal person or the person in charge of a non-legal person organization enters into a private lending contract with the lender in his personal name, and the borrowed funds are used for the unit's production and operation, the people's court shall support the lender's request for the unit and the individual to jointly assume responsibility.

Article 24 If the parties enter into a sales contract as a guarantee for a private lending contract, and the borrower cannot repay the loan when it is due, the people's court shall hear the lender's request to perform the sales contract in accordance with the legal relationship of private lending. The people's court shall allow the parties to change their litigation claims based on the court hearing.

After the judgment made in accordance with the legal relationship of private lending becomes effective, if the borrower fails to perform the monetary debt determined by the effective judgment, the lender may apply to auction the subject matter of the sales contract to repay the debt. The borrower or the lender has the right to claim the return or compensation for the difference between the proceeds from the auction and the principal and interest of the loan to be repaid.

Article 25 If the lending parties have not agreed on interest, the people's court shall not support the lender's claim for payment of interest.

If the interest rate is not clearly agreed upon between natural persons, the people's court shall not support the lender's claim for payment of interest. Except for lending between natural persons, if the lending parties have not clearly agreed on the lending interest rate, the people's court shall determine the interest rate by combining the content of the private lending contract and based on local or parties' transaction methods, transaction habits, market quoted interest rates and other factors.

Article 26 If the lender requests the borrower to pay interest at the interest rate agreed in the contract, the people's court shall support it, unless the interest rate agreed by both parties exceeds four times the one-year loan market quotation rate at the time the contract was established.

The "one-year loan market quoted interest rate" mentioned in the preceding paragraph refers to the one-year loan market quoted interest rate released monthly by the National Interbank Funding Center authorized by the People's Bank of China since August 20, 2019.

Article 27 The loan amount stated on the credit certificate such as a IOU, receipt, or debt note is generally recognized as the principal. If the interest is deducted from the principal in advance, the people's court shall recognize the actual loan amount as the principal.

Article 28 If the lending parties settle the principal and interest of the previous loan and include the interest in the principal of the subsequent loan and reissue the credit certificate, if the previous interest rate does not exceed four times the one-year loan market quoted interest rate at the time the contract was established, the amount stated on the reissued credit certificate may be recognized as the principal of the subsequent loan. The excess interest shall not be recognized as the principal of the subsequent loan.

Calculated according to the preceding paragraph, if the sum of principal and interest that the borrower should pay after the expiration of the loan period exceeds the sum of the initial loan principal and the interest calculated based on the initial loan principal and four times the one-year loan market quoted interest rate at the time the contract was established for the entire loan period, the people's court shall not support it.

Article 29 If the lending parties have an agreement on the overdue interest rate, the agreement shall prevail, but it shall not exceed four times the one-year loan market quoted interest rate at the time the contract was established.

If there is no agreement on the overdue interest rate or the agreement is unclear, the people's court may handle it differently depending on the circumstances:

(1) If neither the interest rate within the loan period nor the overdue interest rate is agreed upon, and the lender claims that the borrower shall bear the liability for breach of contract for overdue repayment from the date of overdue repayment, the people's court shall support it;

(2) If the interest rate within the loan period is agreed but the overdue interest rate is not agreed, the people's court shall support the lender's claim that the borrower shall pay interest on the funds occupied from the date of overdue repayment at the interest rate within the loan period.

Article 30 If the lender and the borrower have agreed on both an overdue interest rate and liquidated damages or other expenses, the lender may choose to claim overdue interest, liquidated damages or other expenses, or may claim them all, but the people's court shall not support the part exceeding four times the one-year loan market quoted interest rate at the time the contract was established.

Article 31 The borrower may repay the loan in advance, unless the parties agree otherwise.

If the borrower repays the loan in advance and claims to calculate interest based on the actual loan period, the people's court shall support it.

Article 32 This provision shall apply to first-instance private lending dispute cases newly accepted by the people's court after this provision comes into effect.

If the lending behavior occurred before August 20, 2019, the upper limit of the protected interest rate may be determined with reference to four times the one-year loan market quotation rate at the time the plaintiff filed the lawsuit.

In case of inconsistencies between the relevant judicial interpretations previously made by the Supreme People's Court and this Interpretation after the implementation of these provisions, this Interpretation shall prevail.