China’s peak body for the internet finance sector points to a resurgence in shady forms of online micro-lending despite a crackdown launched by Beijing towards the end of last year.
The National Internet Finance Association of China (NIFAC) said that some online platforms are using new methods to covertly provide loans to consumers, including “mobile phone lease backs and resales of fake products.”
According to NIFAC some platforms are also driving up interest rates via methods such as “mandatory packaged membership services,” while a small number are even deliberately causing borrowers to miss payments via fake website errors in order to levy exorbitant penalty rates.
Beijing launched a crackdown on internet cash micro-loans in 2017, with regulators suspending the approval of new internet micro-loan licenses on 21 November.
This was followed by the launch of the “Notice Concerning Standardisation and Rectification of Cash Loan Operations” (关于规范整顿“现金贷”业务的通知) by the Internet Finance Rectification Office and the P2P Internet Loan Risk Specialist Rectification Work Leadership Team” on 1 December 2017.
NIFAC highlighted mobile phone lease backs as a particularly widespread means for online platforms to covertly provide micro-loans.
Mobile phone lease back loans (手机回租贷款) refers to borrowers “pledging” their mobile phones to platforms by using electric contracts to temporarily transfer ownership and disposal rights.
The mobile phones do not need to be delivered to the platform physically, while the platform will provide funds to borrowers based on an estimate of the mobile phone’s price.
The borrower then selects a leasing term for use of his or her own mobile phone, and upon expiration of the term the customer can continue to lease the phone or redeem it via a payment to the platform for both the phone and leasing costs, at which point ownership and disposal rights are restored.
According to NIFAC there are already over 100 mobile phone lease back platforms operating in China, with several million customers, with university targets heavily targeted.
Interest rates for mobile phone lease back loans are extremely high, with a standard annualised rate of at least 300%, and some platforms charging in excess of 1000%.
According to analysts this form of lease back can be considered a micro-loan operation, which harbours both regulatory risk while also compromising the privacy of borrowers.
Other online platforms are driving up interest rates for borrowers by forcing them to apply for membership cards or purchase expensive products, with NIFAC indicating that this ruse can lead to real annualised interest rates of as much as 291.9%, as compared to advertised rates of around 36%.
An extreme expedient used by platforms to drive up the cost of micro-loans involving causing borrowers to default on their repayments, with information from consumer website 21Ju Tousu (21聚投诉) indicating that it received 21 complaints in relation to this practice during the period from 1 – 15 May, involving a total of 13 internet lending platforms.
According to the complaints borrowers were unable to make repayments via online platforms leading to failure to make payments as scheduled. Platforms would subsequently resume normal operation, noticing customers via telephone of missed payment, as well as levying exorbitant late payment fees.