"Private lending" is not a new thing for us. Since ancient China, private lending has frequently occurred in social life as an important means of meeting the needs of the public for funds. But never before has it entered the daily lives of ordinary people like this and become a hot topic. Private lending, as a means of financing formed spontaneously by the private sector, as a form of social credit and a supplement to formal finance, has its rationality and positive role in existence, making up for the lack of timely and sufficient funding for small and medium-sized enterprises from financial institutions such as banks.

 

With the introduction of the "Judicial Interpretation of Private Lending", private lending activities have become increasingly enthusiastic, and the "new thing" of "professional lenders" has gradually taken shape and attracted attention from all parties due to social issues such as "arbitrage lending" and "violent collection" in practice. Article 53 of the "Minutes of the Ninth National Court Civil and Commercial Trial Work Conference" (hereinafter referred to as the "Minutes of the Ninth National Court Civil and Commercial Trial Work Conference") issued by the Supreme People's Court in November 2019 actively responds to social concerns, making corresponding provisions for "professional lenders", with the intention of tightening the increasingly widespread private lending activities since the introduction of the "Interpretation of the Civil Lending Law".

 

Here are some related questions about what is a professional lender, what is the concept or identification criteria of a professional lender, and the consequences:

 

1、 What is a professional lender

 

"Professional lenders" is not a legal concept in itself, and there have been no clear legal provisions on the issue of professional lenders in China's laws and regulations. Article 53 of the Minutes of the Ninth People's Congress issued by the Supreme People's Court in November 2019 provides for corresponding provisions on this issue, which is the first time that the concept of "professional lenders" has been confirmed in the normative judicial documents of the Supreme People's Court, while clarifying the consequences of professional lenders' behavior.

 

According to the provisions of the "Nine People's Minutes", it can be extracted that "professional lenders" refer to legal persons, unincorporated organizations, or natural persons who, without legal approval from the competent authorities, have not obtained the qualification to lend loans, and for profit purposes, repeatedly, and with compensation, lend large amounts of funds to unspecified multiple persons within a certain period of time by themselves or through related parties, and engage in this business.

 

2、 Recognition criteria for professional lenders:

 

（1） The "Nine People's Minutes" does not explicitly stipulate the identification standards for professional lenders, and authorizes the higher people's courts or authorized intermediate people's courts in areas where private lending is relatively active to formulate specific identification standards based on the actual situation in the region.

 

（2） The Supreme Court has not specified specific identification criteria, and courts will judge and review whether the lender is a professional lender during the trial process. Some regions have also established a list of professional lenders to facilitate the identification of professional lenders in case trials. For example, Zhejiang is a region where private lending is relatively active, and has stipulated the conditions for inclusion in the list of professional lenders. Based on the practical situation in various regions, the general identification criteria are as follows:

 

First, based on the number of cases closed in three consecutive years, the same or related plaintiffs involved more than 20 private lending cases in civil proceedings in the same basic court (including pre litigation mediation, the same for the following items), or involved more than 30 private lending cases in civil proceedings in the same intermediate court and basic courts in the same jurisdiction;

 

Secondly, within the same year, the same or associated plaintiff has involved more than 10 private loan cases in the civil litigation of the same primary court, or more than 15 private loan cases in the civil litigation of the same intermediate court and various primary courts in the jurisdiction;

 

Third, within the same year, the same or associated plaintiff has involved more than 5 private lending cases in the same intermediate court and various grassroots courts in the same jurisdiction, with a cumulative amount of more than 1 million yuan, or has involved more than 3 private lending cases, with a cumulative amount of more than 10 million yuan;

 

Fourth, if two or more of the following conditions are met, and the number of cases reaches more than half of the provisions of the first and second paragraphs:

 

1. The debit slip is in a unified format;

 

2. The defendant defends that the plaintiff is not the actual lender or requests that the principal and interest be paid to a third person;

 

3. The principal of the loan is claimed to have been delivered in cash without other evidence to support it;

 

4. Withholding the loan interest when delivering the principal or the actual interest paid by the defendant is significantly higher than the agreed interest;

 

5. The plaintiff refuses to appear in court without justified reasons or makes false statements about the facts of the case when appearing in court.

 

3、 How to identify professional lenders in practice:

 

（1） In the process of private loan cases, the court will comprehensively judge the authenticity of the loan based on the sources of funds, trading habits, economic capacity, property changes, party relationships, and party statements. It will determine whether the lender is a professional lender based on factors such as the number of private loan cases involved by the lender in a given year, and the cumulative lending amount.

 

（2） How do borrowers advocate lenders as professional lenders in practice

 

The borrower advocates that the lender is a professional lender, and needs to prove that it provides funds to unspecified objects in society to earn high interest rates. It also needs to prove that its lending behavior is repetitive and regular, and that the lending project is commercial.

 

There are certain difficulties in fulfilling the above burden of proof, especially as lenders often take certain measures to cover up their illegal profit-making activities, making it more difficult to prove professional lenders.

 

（3） Court review of professional lenders:

 

In civil cases, professional lending courts generally identify professional lenders based on a comprehensive judgment of factors such as the number of private lending cases involving the same or associated plaintiff over a period of time, interest rates, contract formatting, lending amounts, and funding sources. The identification methods mainly include centralized identification and case identification.

 

Centralized determination by grassroots courts: Taking the list system of suspected professional lenders established by the Jiangsu High Court as an example, each grassroots people's court should determine the list of suspected professional lenders, which should be summarized by the intermediate people's court and reported to the provincial higher people's court. During the one-year validity period, it is important to review whether it is suspected of being involved in the criminal crime of "arbitrage lending" and whether it is a false lawsuit, And be cautious in using enforcement measures against those who apply for enforcement by suspected professional lenders. However, it is worth noting that the list of suspected professional lenders is only for the internal control of the People's Court and relevant cooperative units, and is not publicly disclosed.

 

2. Trial court case determination: In addition to making inquiries and determinations in the list of suspected professional lenders, the judicial authority can also determine the debtor's claim and provide evidence based on the evidence.

 

4、 Consequences of being identified as a professional lender:

 

（1） Invalid Loan Contract

 

The "Loan Contract" signed by professional lenders is invalid, and lenders can only obtain loan principal and capital occupancy interest losses based on the loan contract (generally calculated based on the loan market quoted rate published by the National Interbank Funding Center). However, relevant contents such as interest and penalty interest agreed upon in the Loan Contract shall be invalid and will not be supported.

 

（2） May constitute a crime of illegal business operations

 

The Supreme People's Court, the Supreme People's Procuratorate, the Ministry of Public Security The Opinions on Several Issues Concerning the Handling of Criminal Cases of Illegal Lending jointly formulated by the Ministry of Justice in October 2019 stipulates that: "1. In violation of national regulations, without the approval of regulatory authorities, or beyond the scope of business, for the purpose of profit making, frequently issue loans to unspecified targets in society, disrupting the order of the financial market, if the circumstances are serious, Article 225 (4) of the Criminal Law shall apply." The provisions of item shall be convicted and punished for the crime of illegal business operation. The term "undefined" used in the preceding paragraph to regularly issue loans to unspecified individuals in society refers to lending funds to unspecified individuals (including units and individuals) for more than 10 times within 2 years in the name of loans or other forms "All property actually collected by the illegal lending perpetrator other than the principal shall be included in the illegal income."

 

According to the above regulations, individuals or units who, without the approval of regulatory authorities, or who exceed their business scope for the purpose of making profits, lend funds to unspecified multiple people for more than 10 times in the form of loans or other names within two years, and if the circumstances are "serious" or "especially serious", they will constitute the crime of illegal business operations:

 

（3） "Professional lending" may become "routine lending"

 

According to the provisions of the Opinions on Several Issues Concerning the Handling of Criminal Cases of "Arbitrary Loan" (April 9, 2019), "Arbitrary Loan" refers to the use of illegal possession as a means of inducing or forcing victims to sign relevant agreements such as "loan" or disguised "loan", "mortgage", "guarantee", etc. in the name of private loan, by falsely increasing the loan amount, maliciously creating a default, or arbitrarily determining a default A generic term for illegal and criminal activities involving the formation of false claims and debts through the destruction or concealment of repayment evidence, and the illegal possession of the victim's property through litigation, arbitration, notarization, or violence, threats, or other means.

 

"Routine loan" is not a crime. Depending on the specific means and facts of the case, "routine loan" may constitute one or more crimes such as fraud, extortion, illegal detention, false litigation, provocation, forced trading, robbery, kidnapping, and even the crime of organizing, leading, and participating in criminal organization. According to the regulations, one felony or several crimes may be punished together.

 

（4） May be included in the list of professional lenders, strong exposure!

 

The court shall, in accordance with the law, include qualified lenders in the list of professional lenders, and send the list to the procuratorate, public security bureau, judicial bureau, tax bureau, financial office, People's Bank of China Zhuji Sub-branch, and other departments to minimize the lending behavior of professional lenders.

 

（5） Tax its interest income according to law

 

According to the provisions of the "Minutes of the Meeting on Levying Taxes on Professional Lenders" issued by the Higher People's Court of Zhejiang Province and the State Administration of Taxation of Zhejiang Province, by legally taxing the interest income of professional lenders, their lending costs are increased, their lending risks and profits are unbalanced, and some professional lenders are urged to withdraw from the market.

 

Conclusion:

 

As a new phenomenon, "professional lenders" still face difficulties in practice, such as "how to grasp the determination criteria: based on the number of court cases or the number of times they engage in lending? Based on the number of lending objects or the amount of lending? Or the scale of profits?" It remains to be further improved by national legislatures, financial regulatory departments, and judicial departments in relevant systems, policies, and regulations.

 

 

(This article is translated by software translator for reference only.)