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Is it legal to charge 20% service charge for loans?
Illegal.

According to Article 24 of the Law of People's Republic of China (PRC) on the Protection of Consumer Rights and Interests, enterprises are prohibited from charging consumers for trouble-free services. The Notice of the People's Bank of China on Regulating Personal Loan Business of Financial Institutions also clearly stipulates that all kinds of financial institutions may not charge other fees in any form without the consent of the borrower or beyond the agreed scope.