Dr. Xiao Feng: Reinterpreting the Characterization and Scope of Private Lending- How to Understand and Apply Article 1 of the New Judicial Interpretation on Private Lending

Source: Applicable Law, by Xiao Feng

From: French Peak Dialect

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Since the implementation of the 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 Judicial Interpretation on Private Lending), promulgated in 2015, positive results have been achieved in judicial practice. However, with the growth of the capital demand of market entities, the interest rate of private lending has continued to rise, which has also attracted various market entities to participate in lending activities. Among them, whether the lending behavior carried out by financial institutions belongs to the scope of private lending regulated and adjusted by the Judicial Interpretation on Private Lending is quite controversial. On the occasion of the second amendment to the Judicial Interpretation on Private Lending in response to the Civil Code of the People's Republic of China (hereinafter referred to as the Civil Code), the author once again sorted out the relevant materials when I participated in the drafting of the Judicial Interpretation and combined with the latest amendments, re-analyzed the characterization and scope of private lending.

One

The normative evolution of private lending

At the beginning of the founding of the People's Republic of China, the Supreme People's Court stipulated the protection of loans and their interests from the level of judicial interpretation. As early as 1951, the Interpretation of the East China Branch of the Supreme People's Court on the Handling of Gold Lending Cases clearly stipulated that "the loan itself is not a violation of the prohibition, so the debtor should still bear the responsibility for repayment". In the "Answer of the Supreme People's Court on The Usury of Urban Lending more than a Few Points" implemented in 1952, the question of how much the interest rate of urban lending is usury was clearly stated: "With regard to the question of how much the interest rate of urban lending is appropriate, according to the current lending rate of the State Bank and the market price situation, the private lending interest rate should generally not exceed three points... Even if the interest rate of free lending among the people exceeds three points, as long as it is voluntary by both parties and there are no other illegal circumstances, it seems that it is not appropriate to interfere." Here, lending between individuals is still referred to as "private lending", and the term "private lending" is not explicitly proposed. As far as the information collected by the author when I participated in the drafting of the judicial interpretation is concerned, the term "private lending" was first proposed in the "Notice of the State Council on Approving and Forwarding the Report of the Agricultural Bank of China on Rural Lending Issues" promulgated in 1981: "At present, it is mainly under the leadership of the Agricultural Bank of China to give full play to the role of credit cooperatives and make credit cooperatives play the role of private lending." It is necessary to vigorously organize rural funds, relax the scope of loans, solve the reasonable capital needs of social teams and individual members, and gradually incorporate rural lending into the credit channels of banks and credit cooperatives. Combined with the context, it can be seen that the "private lending" at this time mainly refers to the lending between rural individuals. This was followed by the "Circular of the State Council on Approving and Forwarding the Report of the Agricultural Bank of China on Reforming the Credit Cooperative System" issued in 1984: "Through reform, it is necessary to restore and strengthen the mass nature of credit cooperatives in organization, the democratic nature of management, and the flexibility of operation, and under the guidance of state principles and policies, implement independent operation, independent accounting, and self-financing, and give full play to the role of private lending." Article 13 of the Interim Provisions on the Management of Credit Funds of Rural Credit Cooperatives promulgated by the Chinese Bank of China and the Agricultural Bank of China in 1987 can also be confirmed: "In order to give play to the role of credit cooperatives in guiding and stabilizing the interest rates of private lending and maintaining the stability of the rural financial market, the deposit and loan interest rates of credit cooperatives should be appropriately revitalized and management should also be strengthened." From the perspective of judicial interpretation, the Opinions of the Supreme People's Court on Several Issues Concerning the Implementation of Civil Policies and Laws, which came into effect in 1984, have made relatively comprehensive provisions on the confirmation of lending relationships, the subject matter of lending, interest rate standards, and the methods of loan return. In the 1988 Opinions of the Supreme People's Court on Several Issues Concerning the Implementation of the General Principles of the Civil Law of the People's Republic of China (for Trial Implementation), which replaced it, it further restricted the "lending behavior" of the object of its regulation to "lending between citizens". However, it can be seen from the wording of the opinion that it does not distinguish between financial lending such as banks and private lending between individuals. This was due to factors such as the low level of social and economic development and the lack of capital demand at that time, and private lending was not common at that time, and there was no need for independent regulations. From the perspective of judicial interpretation, the expression "private lending" was first explicitly proposed in Article 6 of the Several Opinions of the Supreme People's Court on the Trial of Lending Cases by the People's Courts (hereinafter referred to as the "Lending Opinions"), which came into effect in 1991: "The interest rate of private lending may be appropriately higher than the interest rate of the bank, and the people's courts in various localities may grasp it according to the actual situation in the region, but the maximum shall not exceed four times the interest rate of the same kind of loan of the bank (including the number of interest rates). Beyond this limit, interest on the excess is not protected. And the judicial interpretation also clarifies the scope of private lending disputes in article 1: "lending disputes between citizens, lending disputes between citizens and legal persons, and lending disputes between citizens and other organizations."

At any time, the level of China's social and economic development has gradually improved, and the private lending market has become increasingly active. In some places, there have been incidents such as the inability to pay off debts related to private lending in a timely manner, the flight of debtors, and the failure of small and medium-sized enterprises, which have caused a great impact on local economic development and social stability. To this end, in 2011, the Supreme People's Court successively issued the Minutes of the National Civil Trial Work Conference (Faban [2011] No. 442) and the Notice of the Supreme People's Court on Properly Trying Private Lending Dispute Cases in Accordance with the Law to Promote Economic Development and Maintain Social Stability (Law [2011] No. 336), focusing on strengthening the guidance of the identification of evidence for private lending, compound interest and usury, overdue interest rates, punishment of criminal offenses related to private lending, prevention, and sanctions for false lawsuits. In recent years, the number of private lending cases in the national court system has increased year by year, and by 2015, it has surpassed marriage and family cases, ranking first in the number of all types of civil cases. In order to alleviate the pressure faced by the people's courts on the adjudication of private lending cases and unify the adjudication standards, the Supreme People's Court promulgated and implemented the Judicial Interpretation on Private Lending in 2015. In order to facilitate the conscientious study and application of the judicial interpretation by courts across the country, the Notice of the Supreme People's Court on Conscientiously Studying and Implementing the Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases was also issued at that time, which clarified the precautions for the application of the Judicial Interpretation on Private Lending. After the implementation of the Judicial Interpretation on Private Lending, in order to distinguish between financial loan contracts and private lending contracts, the Supreme People's Court promulgated the Several Opinions of the Supreme People's Court on Further Strengthening Financial Adjudication Work in 2017, which stipulates that "2. Strictly follow laws and regulations to make usury loans, effectively reducing the financing costs of the real economy." If a borrower in a financial loan contract requests a reduction in the total amount exceeding 24% of the annual interest rate on the grounds that the interest, compound interest, penalty interest, liquidated damages and other expenses claimed by the lender at the same time are too high and significantly deviate from the actual loss, it shall be supported to effectively reduce the financing costs of the real economy. Standardize and guide the order of private lending, and lawfully negate the validity of contract clauses that circumvent the upper limit of judicial protection of private lending interest rates, such as withholding principal or interest or disguised high interest rates in private lending dispute cases. In 2018, the Supreme People's Court also promulgated the Notice of the Supreme People's Court on the Proper Trial of Private Lending Cases in Accordance with the Law (Law [2018] No. 215), which targeted new types of crimes in society such as "routine loan" fraud such as illegally appropriating property through the cloak of private lending, such as "inflating debts", "forging evidence", "maliciously creating defaults", "collecting high fees" and other means. In the 2019 Minutes of the National Court Work Conference on Civil and Commercial Trials (Law [2019] No. 254), it is further clarified that "in the process of hearing loan contract dispute cases, the people's courts shall treat financial lending differently from private lending in accordance with the spirit of preventing and resolving major financial risks, financial services to the real economy, and reducing financing costs, and apply different rules and interest rate standards." It is necessary to deny the effectiveness of usurious refinancing and professional lending in accordance with the law." In August and December 2020, the Supreme People's Court amended the Judicial Interpretation on Private Lending twice.

The evolution process of the above normative documents on judicial practice on private lending clearly shows the process of not distinguishing between lending, private lending and financial lending until the final boundary is clear, and it can basically draw a conclusion: China's judicial practice has clearly distinguished lending behavior into two types of financial lending and private lending, each with its own applicable rules and interest rate standards. It is important to note, however, that the above conclusions have not yet been explicitly endorsed by legislation. Neither the provisions of Chapter 12 "Loan Contracts" of the Contract Law of the People's Republic of China (hereinafter referred to as the Contract Law) of 1999, or the "Loan Contract" of Chapter 12 of Part III of the Civil Code that have just been implemented, have not made any qualification restrictions on the subjects of the loan contract, let alone made the distinction between financial lending and private lending on the loan contract, but only added the expression "prohibiting usurious lending" to article 680 of the Civil Code.

Two

Understanding of "Private Lending" in the Judicial Interpretation on Private Lending

As mentioned above, although the term "private lending" has been clearly put forward in the Lending Opinions implemented in 1991 at the level of judicial interpretation, the connotation and extension of "private lending" have not been clearly defined at the legislative level, so it is not a definite legal concept. In real life, there are a large number of legal persons, other organizations and natural persons outside the formal financial industry that need to be regulated urgently. Therefore, correctly standardizing and defining private lending to distinguish it from lending by banks and other financial institutions has become the first issue that must be solved in the drafting and formulation of the Judicial Interpretation on Private Lending. This not only involves the scope of the subject of private lending legal relations, but also involves the choice of norms and their application when the people's courts hear lending cases. Judging from the various views on the definition of private lending at home and abroad, although the names are different, the connotations and extensions are not the same, but they all have the same essential connotation: private lending is mainly the financing process of private funds in various fields of society, which is not registered by official financial institutions and is free from private financial integration activities outside financial supervision. Specifically, the financing activities of private lending are in the case that market entities cannot obtain financial services from formal financial institutions, in order to cope with the lack of formal financial services, a large amount of private capital enters the financial market based on profit-seeking as a supplement to fill the missing part of formal financial services. Since such financial integration behaviors are unofficial, informal and profit-seeking, and have typical private characteristics, it is indeed necessary to give these borrowing behaviors with different manifestations a unified and clear title and definition from the perspective of convenient unified understanding and supervision. Therefore, the first issue to be solved in the drafting process of this article is the definition of the connotation and subject scope of private lending behavior. In view of the consensus at home and abroad that private lending activities are informal and financial, the name "non-financial institution lending" has been used in the Judicial Interpretation on Private Lending for a long period of time from the early drafting period until it solicits opinions from all sectors of society. In the early drafting of the judicial interpretation, this article was expressed as follows: "Lending by non-financial institutions" as used in these Provisions refers to the conduct of financial integration between legal persons of non-financial institutions, between other organizations, between natural persons, and between them. However, in the internal discussion of the court system, the expression "non-financial institution lending" in this article has given rise to two very different opinions: the first opinion holds that since the current legislation does not provide for such private financing behavior, and private lending is not a concept in the legal sense, it is not appropriate for judicial interpretation to create a legal term "private lending", but should be stipulated through legislation. In fact, the so-called "private lending" is only a common name relative to the lending behavior of state financial institutions. The scope of the subject itself is not clear, the legal basis is insufficient, and it is not suitable to be used as a concept of judicial interpretation. Since the purpose of formulating the judicial interpretation is to regulate all lending behaviors other than the participation of financial institutions, legal persons, other organizations and natural persons engaged in lending activities outside financial institutions can all be included in the scope of non-financial institutions, and there is no need to use a clear name to oversee such lending behaviors. For the sake of prudence, financing acts between civil entities other than such financial institutions may be objectively described as non-financial institution lending. Another view was that the term "private lending" should be adopted. The reason is that, first, although private lending is not a concept in the legal sense, this title has a long history and profound tradition in China, and has been agreed upon in daily life and trial practice, and is familiar to society; second, it is precisely because of the lack of clear legal provisions on the behavior of private lending, there is a lack of norms, so it is more necessary to clearly define it through judicial interpretations, so as to make up for the gap in legislation, unify social cognition and adjudication standards, and is more conducive to the standardized management of private lending behavior. On the basis of listening to the suggestions of many parties, after repeated research and careful discussion, the judicial interpretation finally adopted the second opinion: the title of "private lending" was used in the definition of the title and concept of the judicial interpretation. The main reasons for this are as follows:

1. The expression "non-financial institution lending" is not precise enough

According to the different lending entities, China's lending market is mainly composed of three parts: natural person lending, financial institution lending, and non-financial institution lending. In the early days, private lending was subject to the level of social and economic development, and the lenders and borrowers in the lending relationship were mainly natural persons, and the purpose of borrowing was mainly to treat diseases, go to school and other living expenses. Correspondingly, the Lending Opinions, as well as relevant judicial policies, administrative rules, and even the criminal law, stipulate that illegal fund-raising and other crimes of undermining financial order are mainly regulated by lending disputes between natural persons and natural persons, between natural persons and legal persons, and between natural persons and unincorporated organizations. Among them, lending between natural persons is the mainstream of private lending. A large number of private lending disputes are caused by loans between natural persons or are closely related to natural persons. As for the borrowing of financial institutions, it is relatively complicated because the general consensus on what is a financial institution has not yet formed. Up to now, China's legal level has not defined financial institutions, and the relevant expressions about financial institutions are mostly reflected in administrative rules, normative documents and policies issued by industry regulatory departments. For example, paragraph 2 of article 2 of the Measures for the Punishment of Financial Violations promulgated by the State Council in 1999 stipulates that financial institutions refer to institutions that have established and operated financial business in accordance with the law within the territory of the People's Republic of China, including banks, credit cooperatives, financial companies, trust and investment companies, and financial leasing companies. For another example, the financial institutions stipulated in the "Code of Financial Institutions" issued by the Chinese Bank in 2009 mainly include the following categories: 1. Banking depository financial institutions, including banks, urban credit cooperatives (including associations), rural credit cooperatives (including associations), rural capital mutual aid cooperatives, and financial companies; 2. Non-depository financial institutions in the banking industry, including trust companies, financial asset management companies, financial leasing companies, auto finance companies, loan companies, and currency brokerage companies 3. Financial institutions in the securities industry, including securities companies, securities investment fund management companies, futures companies, and investment consulting companies; 4. Financial institutions in the insurance industry, including property insurance companies, life insurance companies, reinsurance companies, insurance asset management companies, insurance brokerage companies, insurance agency companies, insurance valuation companies, and enterprise annuities; 5. Trading and settlement financial institutions, including exchanges, registration and settlement institutions; 6. Financial holding companies, including central financial holding companies and other financial holding companies 7. Microfinance companies. It can be seen that there are currently inconsistencies in the definition and scope of financial institutions in different departments and at different levels of effectiveness.

As for non-financial institutions, they are all legal persons and unincorporated organizations other than those approved by the above-mentioned financial regulatory authorities. It can be seen that if the title of loan by non-financial institutions is adopted, although it can be distinguished from the loan of financial institutions, its meaning only refers to other institutions and organizations other than financial institutions, and does not include loans between natural persons. This obviously does not match the main types of private lending. Moreover, the definition of the scope of financial institutions by China's financial regulatory authorities has been in a state of development and change. For example, according to paragraph 3 of Article 2 of the Trial Measures for the Supervision and Administration of Financial Holding Companies, which was recently promulgated and implemented by the Chinese Bank in 2020, financial institutions include the following types: (1) commercial banks (excluding village and township banks) and financial leasing companies. (2) Trust companies. (3) Financial asset management companies. (4) Securities companies, public fund management companies, and futures companies. (5) Life insurance companies, property insurance companies, reinsurance companies, and insurance asset management companies. (6) Other institutions designated by the financial management department under the State Council. Therefore, the general use of the expression of non-financial institutions lending will lead to uncertainty about the connotation and extension of non-financial institutions due to the "fickle" nature of the scope of financial institutions in China.

2. The term "private lending" has long been widely recognized

Before the promulgation and implementation of the Contract Law in 1999, China's laws, administrative regulations and judicial interpretations of the Supreme People's Court have always referred to the lending relationship of financial institutions as lenders as loan contracts, and the currency borrowing relationship between natural persons and between natural persons and between natural persons and legal persons as loan contract relationships, and adjusted them with different legal norms. Although at that time, when the Contract Law was drafted, the legislators combined the actual situation in China and the majority of views in the academic community, and finally referred to the loan contract and the private lending customs system of financial institutions as lenders as loan contracts. However, after all, there is a big difference between a private lending contract and a loan contract in which a financial institution acts as a lender, and the applicable laws and regulations are not exactly the same. Article 77 of the Provisions on the Causes of Civil Cases, which came into effect as early as 2008, has already regarded private lending disputes as a three-level cause of action under the causes of disputes over loan contracts, alongside disputes over financial loan contracts, until article 103 of the Provisions on causes of action in civil cases, which was amended for the second time in 2020, still retains the cause of action. This shows that after years of practice in the trial of such cases by the people's courts at all levels, the expression of private lending has been recognized by judicial practice circles and the public. Therefore, the use of private lending titles can reduce the cost of judicial application. Therefore, when formulating the Judicial Interpretation on Private Lending in 2015, the term "lending" was used, and the loan contract between natural persons, between natural persons and legal persons, between unincorporated organizations, and between legal persons and unincorporated organizations was called "lending contracts", and the resulting legal relationship was called "lending legal relationship". The two subsequent amendments to the Judicial Interpretation on Private Lending still use this title.

Three

Whether the Judicial Interpretation on Private Lending regulates the lending behavior of financial institutions

Generally speaking, finance refers to economic activities such as the issuance, circulation and withdrawal of money, the issuance and recovery of loans, the deposit and withdrawal of deposits, and the exchange of foreign exchanges. Due to the huge impact of financial activities on national economic and social development, all countries have strictly regulated the financial industry. Specific to China, the regulatory framework based on separate operation and separate industry supervision is adopted. Separate operation refers to the separation of the three sub-industries of banking, securities and insurance in the financial industry, commercial banks, securities companies and insurance companies can only operate their own banking, securities business and insurance business, and financial institutions in one sub-industry cannot operate the business of the other two sub-industries in principle. At present, China's banking and insurance industries are supervised by the Banking and Insurance Regulatory Commission, and the securities industry is supervised by the Securities Regulatory Commission. Specifically, the loan issuance business referred to in this article belongs to the category of banking business. Article 21 of the General Principles of Loans stipulates that the lender must be approved by the Chinese Bank to operate the loan business, hold the "Financial Institution Legal Person License" or "Financial Institution Business License" issued by the Chinese Bank, and be approved and registered by the administrative department for industry and commerce. However, after experiencing many changes in financial regulatory agencies, at present, the Banking and Insurance Regulatory Commission is mainly responsible for approving the operation of loan business, and the banking financial institutions that can issue loans are mainly the banking financial institutions supervised by the Banking and Insurance Regulatory Commission, which mainly have two categories, one is banks, and the other is trust companies. In addition, microfinance companies (Guiding Opinions on the Pilot Program of Microfinance Companies), auto finance companies (Measures for the Administration of Auto Finance Companies), pawn shops (Pawn Management Measures), finance companies (Measures for the Administration of Enterprise Group Finance Companies), loan companies (Provisions on the Administration of Loan Companies), and consumer finance companies (Measures for the Administration of Pilot Consumer Finance Companies) may also engage in the granting of loans under limited conditions. As for the securities financing business of securities companies and the policy pledge loan business of insurance companies, they also have the characteristics of issuing loans. The main business that cannot be engaged in the business of granting loans according to law are: financial leasing companies (Interim Measures for the Supervision and Administration of Financial Leasing Companies), financial holding companies (Trial Measures for the Supervision and Administration of Financial Holding Companies), financial leasing companies (Measures for the Administration of Financial Leasing Companies), commercial factoring companies (Notice on Strengthening the Supervision and Administration of Commercial Factoring Enterprises), financing guarantee companies (Regulations on the Supervision and Administration of Financing Guarantee Companies), and financial asset management companies (Regulations on Financial Assets Management Companies). Regional equity markets (Trial Measures for the Supervision and Administration of Regional Equity Markets), futures companies (Regulations on the Administration of Futures Trading), etc. The loan granting business in the sense of business scope is a highly regulated industry and is an administrative licensing matter of the financial regulatory authorities, that is, only those specific institutions that have obtained financial licenses can carry out. If you do not have the qualification to lend money and engage in the business of issuing loans, you will be identified as suspected of engaging in "illegal financial business activities", which may lead to the invalidity of the contract and even bear criminal liability such as illegal operation. Correspondingly, disputes arising from financial institutions engaging in loan granting business in accordance with the law are defined in the Provisions on the Causes of Action in Civil Cases as financial loan contract disputes alongside private lending disputes. The biggest difference between it and private lending disputes is that the business scope of the lender includes the loan business authorized by the financial regulatory authorities, so the lender can often engage in the loan business, or even take it as its main business. As mentioned above, the main banking financial institutions that have the right to issue loans according to law are commercial banks, rural cooperative banks, rural credit cooperatives, policy banks, and the State Development Bank. Although the scope and objects of loans issued by the above-mentioned entities are different, they are all approved by the financial regulatory authorities and have obtained statutory licenses to engage in loan issuance business, which is not in line with the unofficial, informal and profit-seeking essential attributes of private lending. Therefore, they are all exceptions to private lending. To this end, paragraph 2 of article 2 of the Draft for Comments on The Judicial Interpretation on Private Lending, when drafting the Judicial Interpretation on Private Lending, stated that the object of the judicial interpretation was "the legal persons of non-bank financial institutions and their branches such as financing guarantee companies, financial leasing companies, pawn shops, small loan companies, investment consulting companies, and rural capital mutual aid cooperatives established with the approval of the competent government financial departments, and their branches carry out loan business through guarantees, leases, pawns, small loans, etc., and these Provisions shall apply to disputes arising therefrom." These Provisions shall not apply to disputes arising from the issuance of loans by banks engaged in loan business established with the approval of the competent financial department of the government and their branches. Later, through analysis and argumentation, according to the suggestions of all sectors of society, especially the Chinese Bank, combined with trial practice, paragraph 2 of article 1 of the Judicial Interpretation on Private Lending ultimately stipulates: "Financial institutions and their branches engaged in loan business established with the approval of the financial regulatory authorities shall not apply to disputes arising from the issuance of loans and other related financial business." As far as the interpretation of the meaning of this paragraph is concerned, it is aimed at financial institutions that have the right to engage in loan business according to law to issue loans and other related financial businesses. For example, the above-mentioned banks, credit unions, etc. As far as financial leasing companies, financial holding companies, financial leasing companies, commercial factoring companies, financing guarantee companies, financial asset management companies, regional equity markets, futures companies and other entities that do not have the qualifications to engage in the business of issuing loans are concerned, although they meet the requirements of "established with the approval of the financial regulatory authorities" in paragraph 2 of article 1 of the Judicial Interpretation on Private Lending, they are not currently qualified to engage in the business of granting loans according to law, so they cannot meet the requirements of "financial institutions and their branches engaged in loan business" This subject is limited. Furthermore, it is unclear whether the acts of these financial institutions and their branches that are not qualified to engage in loan business belong to the scope of private lending, and the adjustment of the Judicial Interpretation on Private Lending is applicable. From a practical point of view, it is not uncommon for the above-mentioned entities to engage in loan issuance activities by assisting banks to falsely list non-performing assets, providing financing in disguise for non-financial enterprises in the name of non-performing asset business, and carrying out entrusted loan business through channels such as small loan companies, banks, and trusts. The resulting dispute is whether the Judicial Interpretation on Private Lending applies to the dispute. In particular, there are seven types of local financial organizations, including microfinance companies, financing guarantee companies, regional equity markets, pawn shops, financial leasing companies, commercial factoring companies, and local asset management companies supervised by local financial regulatory departments. From a practical point of view, in these local financial organizations, microfinance companies and pawn shops are mainly engaged in the loan business, while financing guarantee companies, commercial factoring companies, financial leasing companies, local asset management companies, and regional equity markets may also be involved in providing financing services in the course of operation. As to whether these local financial organizations engaged in the business of granting loans are subject to the adjustment of the Judicial Interpretation on Private Lending, there was controversy during the drafting of the Judicial Interpretation on Private Lending in 2015. At that time, the mainstream view was that these institutions were approved and established by local governments or industry authorities at that time, not the objects of supervision by the central financial regulatory departments, and did not implement the regulatory policies of unified interest rates, reserve ratios, lending scale, etc., and the daily business supervision was not standardized, and even there was a phenomenon of lagging supervision and lack of supervision. Therefore, it has the characteristics of private lending, and when a dispute arises, it should be handled by the Judicial Interpretation on Private Lending. However, in recent years, in order to avoid the impact on consumer finance business and reduce the supply of inclusive finance, it should be clarified that the above seven types of local financial institutions should not apply the "Judicial Interpretation on Private Lending" and the suggestions and opinions. Moreover, local people's courts have also generally reflected that the scope and criteria for the identification of financial institutions in paragraph 2 of article 1 of the Judicial Interpretation on Private Lending should be clarified. To this end, in the process of the second amendment of the Judicial Interpretation on Private Lending, we made a special trip to the courts of Guangdong Province, Zhejiang Province and other places to conduct special research on this issue, and specially solicited the opinions of relevant financial regulatory departments. Feedback from financial regulatory departments believes that the "Several Opinions of the CPC Central Committee and the State Council on Serving the Real Economy to Prevent and Control Financial Risks and Deepen Financial Reform" (Zhongfa [2017] No. 23) has made it clear that the above seven types of local financial organizations are formulated by the central financial regulatory departments, and the local financial regulatory departments implement supervision. The Opinions of the General Office of the State Council on Comprehensively Promoting the Comprehensive Statistical Work of the Financial Industry (Guo Ban Fa [2018] No. 18) has also included the above seven types of local financial organizations in the scope of comprehensive statistics of the financial industry. Therefore, in the foreseeable future, the above seven types of local financial organizations should be included in the category of financial institutions in a broad sense, and regulatory rules and standards will gradually converge. In addition, the Regulations on Local Financial Supervision and Administration, which are being drafted by the Chinese Bank, also intend to clarify that the above seven types of local financial organizations need to be approved by the local financial regulatory department and subject to the supervision of the local financial department. At the same time, the Regulations on Non-Depository Lending Organizations, which the Ministry of Justice is drafting, have focused on regulating the business of non-depository lending organizations such as microfinance companies and pawn shops. In this context, the relevant financial regulatory authorities suggest that the above seven types of local financial organizations should not be applied to the Judicial Interpretation on Private Lending. After several deliberations, on November 9, 2020, the 1815th meeting of the Adjudication Committee of the Supreme People's Court adopted the Reply of the Supreme People's Court on the Scope of Application of the Judicial Interpretation on New Private Lending, which was approved by the Higher People's Court of Guangdong Province as follows: "I. On the Issue of scope of application. After soliciting the opinions of the financial regulatory authorities, seven types of local financial organizations, such as microfinance companies, financing guarantee companies, regional equity markets, pawn shops, financial leasing companies, commercial factoring companies, and local asset management companies supervised by the local financial regulatory departments, belong to financial institutions established with the approval of the financial regulatory authorities, and their disputes arising from engaging in related financial business are not applicable to the new Judicial Interpretation on Private Lending. 2. The other two issues have been clarified in the revised judicial interpretation, please follow them. 3. This reply shall take effect from January 1, 2021. That is to say, from January 1, 2021, disputes arising from the above seven types of financial institutions supervised by local financial institutions and departments engaged in financial business such as granting loans are not applicable to the adjustment of the Judicial Interpretation on Private Lending.

(Note: This article is excerpted from the book "Understanding and Application of the New Judicial Interpretation of the Supreme People's Court on Private Lending" co-authored by Dr. Xiao Feng and has been revised for more details. ）