At least four licensed consumer finance companies in China have lowered the ceiling on annualized interest rates for new loans to below 20% as China’s rule on transparent comprehensive financing costs took effect on August 1, according to Jiemian News. The firms include Sunshine Consumer Finance, Monshang Consumer Finance, Shengyin Consumer Finance and Nanyin-BNP Paribas Consumer Finance.

Sunshine Consumer Finance first cut the rate cap on its “Huanxi Loan” product from 24% to 20% in March, with a pricing range of 10.08% to 20%. Monshang Consumer Finance said in April that annualized rates on new loans would stay below 20%, and later said on August 4 that the ceiling for the comprehensive financing cost of loans performed normally was 20%. Shengyin Consumer Finance lowered the cap on its loan products from 23.76% to 19.98% in July. Nanyin-BNP Paribas Consumer Finance reduced the ceiling on personal consumer loans to 20% on August 1, with a posted range of 3% to 20%.

Jiemian News also said Zhaolian Consumer Finance, CCB Consumer Finance and BOC Consumer Finance have completed fee and interest transparency upgrades. While many consumer finance firms still post a 24% ceiling, their weighted average actual lending rates have been declining. Industry participants said the cuts reflect tighter competition for higher-quality borrowers and a shift away from higher-risk, high-yield lending.

The lower rate caps are squeezing profitability. One company executive said typical industry costs include funding costs of about 3% to 5%, risk control and customer acquisition costs of about 6% to 8%, and operating and other costs of about 2% to 3%, leaving a common total cost range of 12% to 15%. Another executive said the 4-percentage-point cut from 24% to 20% has removed a buffer that previously helped absorb bad debt, forcing firms to improve risk control, operations and self-operated channels while reducing reliance on loan facilitation and guarantee partners.