Regulatory Technology Helps Post-Loan Management（China Banking And Insurance News)

With the continuous enrichment of financial technology (FinTech) innovation and application, FinTech can not only help consumer finance companies do a good job in pre-loan audit risk management, but also help overcome the problems in post loan collection and loan recovery.

Authors: Yifei Shen and Ning Du

Post loan management is a powerful guarantee for commercial banks and other lending institutions to promote the healthy and sustainable development of credit business, and it is also an important part of controlling the non-performing loan rate. In recent years, innovative credit products have emerged in China, and the loan balance has increased year by year. According to the statistics of the People’s Bank of China, in January 2022, RMB loans increased by 3.98 trillion yuan, with an increase of 394.4 billion yuan over the previous year. At the end of January 2022, the balance of RMB loans reached 196.65 trillion yuan, with an increase of 11.5% over the previous year. However, up to now, post loan management is still a weak link in the credit management chain of many financial institutions, and the phenomenon of “valuing loans while ignoring loan management” is prominent. On the one hand, in order to pursue performance growth, some financial institutions intentionally relaxed the credit threshold and blindly expanded the credit scale, resulting in post loan management to become “post-mortem management”; On the other hand, it is difficult to grasp the assets and liabilities of the debtor and the use of funds in a timely manner, which objectively increases the difficulty of post loan management.

Due to the lack of post loan management, the outsourcing post loan collection service became popular. Some outsourcing agencies used frequent harassment, verbal pressure and other negative means in the process of collection in pursuit of performance. Some criminals even used illegal means such as threats, insults, fraud, which seriously violated the legitimate rights and interests of the debtor and caused a bad social impact. To this end, regulators have repeatedly put forward relevant requirements. In February 2021, the CBRC, the Central Internet Information Office, the Ministry of Education, the Ministry of Public Security and the People’s Bank of China jointly issued the Notice on Further Standardizing the Supervision and Management of Internet Consumption Loans for College Students, which requires strengthening post loan management, ensuring that the flow of loan funds complies with the provisions of the loan contract, properly handling overdue loans, standardizing collection management, and forbidding any violent collection behavior that interferes with the normal study and life of college students. The People’s Bank of China issued the Implementation Measures of the People’s Bank of China on the Protection of the Rights and Interests of Financial Consumers in September 2020, requiring financial institutions to establish and improve a financial consumer complaint handling system and to timely, truthfully, accurately and comprehensively report complaints based on the characteristics of financial products or services. It is required to disclose the complaint channels to financial consumers for handling of disputes arising from financial products or services.

How to effectively implement the policy after it is released? The staff from the People’s Bank of China mentioned in an interview that it is necessary to effectively build a complaint monitoring and analysis system and promote online mediation of financial disputes. This provides a way to solve the problem for policy implementation. With policy implementation as the goal, the regulatory authorities, financial institutions, and collection outsourcing agencies’ top priority are to construct the regulatory technology (RegTech) system.

Firstly, RegTech can provide regulators with channels to master the handling of financial disputes. At present, the proliferation of various credit disputes and rights protection has brought great pressure to the normal operation of post loan management. With the interactive characteristics of regulatory technology, regulators can maintain information exchange with financial institutions and collection outsourcing agencies, and cooperate with each other to safeguard rights and resolve disputes.

Secondly, it is suggested to make full use of relevant technical means of RegTech to improve the efficiency of post loan management. In recent years, various digital financial products have become increasingly abundant, and illegal means have become more complex and hidden. A single technical means can only solve a certain scenario in the post loan management chain. Therefore, it is suggested to comprehensively use AI, big data, blockchain, privacy enhanced computing and other technologies to assist post loan management, effectively analyze and judge the content of credit disputes, and achieve the auditability and traceability of related disputes and rights protection, so as to improve post loan management efficiency and reduce human costs. At the same time, the practitioners should perform the principles, standards and operational procedures of personal information protection in the whole chain of business collection, specify the source, scope of use, premise of use, security and other specific requirements of personal information, and achieve a balance between reasonable use of personal information and legal protection of personal privacy through RegTech.

Thirdly, RegTech is conducive to positively guiding the disputing parties and establishing correct values. Financial institutions, as the main body to effectively handle financial consumer disputes, should actively and positively deal with financial consumer complaints, so as to safeguard their rights and make sure that they will respond. Through the application of RegTech, they can report the progress and results of relevant financial dispute resolution to the regulatory authorities. Early warning mechanisms can be implemented for actions that delay or evade handling, effectively improving the efficiency of resolving financial dispute cases. At the same time, financial institutions need to establish and improve financial knowledge publicity and consumer education mechanisms, actively cultivate values based on “honesty and trustworthiness” and guide financial consumers to safeguard their legitimate rights and interests through legal channels in a civilized and rational manner. At the same time, it is required to severely crack down on debt evasion and further optimize the financial ecology and credit environment.

Fourth, RegTech facilitates the strengthening of post loan management, especially considering the debtor’s situation. In the process of financial institutions’ collection business, RegTech can, on the premise of protecting the privacy of others, make a more in-depth judgment and analysis of the debtor’s actual situation, give reasonable suggestions on debtor’s actual difficulties, and reflect humanistic care. For example, some debtors are unable to continue to repay the loan objectively due to serious illness, to respond, financial institutions can timely take measures such as extending the repayment period, reducing interest penalties, and terminating collection.

As an important part of preventing and defusing financial risks, regulators and practitioners should form a joint effort, comprehensively use technological means, strengthen post loan management, strive to enhance the sense of gain and happiness of financial consumers, enhance the confidence of financial consumers, and further promote financial security and development.