Move won't stop lenders trying to sue: insider
China's Supreme People's Court (SPC) on Thursday released a judicial interpretation of civil lending disputes, stipulating the responsibilities of Internet lending platforms in such cases.
While it is through peer-to-peer (P2P) platforms that borrowers obtain the funds they need from lenders, operators of such online lending platforms primarily function as intermediaries and are not required to guarantee the loans, according to the judicial interpretation issued by the SPC.
The court also noted that if there is any evidence that operators of P2P platforms have offered to guarantee loans, they could be forced to take responsibility for it. The judicial interpretation will take effect from September 1, 2015.
The judicial interpretation this time specifies clearly two legal concepts - the role of the intermediary and the function of guarantees - which are generally involved in the operation of P2P platforms, according to a report Thursday by news portal people.com.cn, citing Du Wanhua, a member of the SPC's Judicial Committee.
Du also said the move will offer better protection for lenders' rights, as well as helping to further promote the development of China's online micro-lending market.
China's Internet finance industry has seen rapid growth in recent years, particularly for P2P platforms, but there has also been a rise in problems resulting from lack of supervision and poor risk management.
The trading volume of P2P platforms hit 250 billion yuan ($40.25 billion) in 2014, double the amount in 2013, according to the Internet Society of China, but 275 platforms closed during the same year.
"The judicial interpretation makes it clear that online P2P platforms are not financial institutions and are just intermediary parties connecting borrowers and lenders," Ni Shoubing, dean of the School of Law at Shanghai University of International Business and Economics, told the Global Times on Thursday.
"Some of these platforms may set aside certain risk preparation funds, but the amount is far less than at professional financial institutions, so they don't actually have the ability to repay lenders when loans go bad," Ni said.
The real responsibility of P2P platforms is to disclose complete and accurate information about where the borrowed money is going, Ni noted.
But Luo Lei, chief operating officer at Shanghai-based P2P platform, said that even though the judicial interpretation clarifies the responsibilities of P2P platforms, lenders who lose money may still try to sue platform operators even if they have not offered to guarantee the funds.
Although it is not compulsory for P2P platforms to guarantee lenders' funds, in order to attract business and gain more credibility they often make promises about the security of the funds, such as having backing from a third-party guarantee company.
"Even backing from a guarantee company doesn't mean the investment is 100 percent secure," Luo told the Global Times on Thursday. "The investment money may only be 50 percent secure. Also, even a guarantee company can get into trouble and fail to assume its responsibility."
For instance, in April, Hebei Financing Investment Guarantee Group Co, the largest loan guarantee company in North China's Hebei Province, faced bankruptcy risks as it didn't have enough capital to back all of its guarantees, according to media reports.