China bans micro-lenders from 'fleecing' college students 

Regulators said some platforms targeted campuses with the cooperation of tech firms; campaigns induced some students into excessive consumption and drew some into "debt traps"; banks were also warned to cut risks by getting a secondary payer, such as a parent

China bans micro-lenders from 'fleecing' college students
Chinese regulators are tightening oversight on online lending by banks and internet platforms to foster a steady pace of growth and pre-empt any financial crisis. File photo by Reuters.

(ATF) China has banned micro-lending firms such as Jack Ma’s Ant Group from granting consumer loans to college students in a bid to prevent more than 30 million students across the mainland from falling into debt traps.

The ban strikes another blow against online micro-lending platforms, including Ant Group’s Huabei and Jiebei.

Huabei operates like a virtual credit card and Jiebei is a short-term consumer loan provider. Based in the southwestern city of Chongqing, the two lucrative businesses contributed about 40% of the group’s 72.5 billion yuan ($11.1 billion) revenue in the first half of 2020. 

Huabei charges a daily interest rate of 0.05%, which is on the upper end compared with credit cards issued by banks, while Jiebei’s interest rate is higher.

In a notice jointly issued last week by five government agencies including the China Banking and Insurance Regulatory Commission, the People’s Bank of China and the Ministry of Public Security, the regulators said some micro-lenders have targeted college campuses and conducted marketing with the cooperation of technology firms.

The campaigns induced some college students into excessive consumption on internet platforms and drew some of them into "debt traps".

The regulators said they were determined to weed out illegal practices that "fleece" college students.

'Must not target students'

“Micro-lending companies must strengthen the verification of customer identities, and must not target college students as customers for online consumer loans,” the joint statement said.

Commercial banks were also urged to strengthen their due diligence and risk management of online loans made to college students. Banks should obtain an affidavit of support from a secondary payer, such as the student’s parent before granting a loan.

A series of rules since November have imposed more restrictions on the previously lightly regulated sector and led to the abrupt suspension of Ant’s $35 billion initial public offering late last year.

Chinese regulators are tightening oversight on online lending by banks and internet platforms to foster a steady pace of growth and pre-empt any financial crisis. 

The rules, particularly targeted at online lending platforms, will require them to contribute 30% of the funding for loans they offer in partnership with traditional banks, effective from January 2022. 

Previously, Ant Group’s Jiebei and Huabei micro-lending businesses only contributed about 1-2% of the funding for joint-loans with banks, according to research firm Financial Regulation & Law.

Concerns that Ant Group will need to raise capital to plug the shortfall and seek national licences have prompted analysts at Morningstar and others firms to slash estimates on Ant’s valuation by half from $280 billion before its scrapped listing.

And lower costs for small business

Meanwhile, another policy aimed at boosting consumption issued on Thursday calls for e-commerce platforms, payment service providers, as well as banks, to lower their fee rates charged to small businesses.

“Food-ordering, ride-hailing, and e-commerce platforms should be guided to optimize their commission rates for small- and medium- sized enterprises (SMEs) and individual sellers… Commercial banks, non-bank payment institutions, and settlement institutions should be encouraged to optimize their mobile payment fees and other fees using innovative measures, so as to lower payment costs for SMEs,” a joint circular issued by  28 government departments including the National Development and Reform Commission and the Cyberspace Administration of China said.

The policy is expected to affect the bottom line of Ant Group’s payment services, which accounted for 35.9% of its total revenues in the first half of last year.

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