The Chinese central government has launched new measures directed at “taolu (routine) loans” that target elderly citizens and other vulnerable members of society, oftentimes under the guide of online micro-finance.
China’s National Anti-crime Office (全国扫黑办) announced on 9 April that the Supreme People’s Court, the Supreme People’s Procuratorate, the Ministry of Public Security and the Ministry of Justice had jointly issued the “Opinions Concerning Several Problems in Relation to the Handling of Taolu Loan Criminal Cases” (关于办理“套路贷”刑事案件若干问题的意见), which came into effect on the same date.
The Opinions seek to better demarcate the difference between taolu loans and private lending, as well as outline harsh legal punishments for taolu loans.
The Opinions define taolu loans as a general term for criminal activity which has the goal of the illegal acquisition of the assets of victims, by inducing them to sign lending, pledging or guarantee agreements before inflating loan amounts or maliciously fabricating contractual breach events in order to create “false debts.”
The Opinions distinguish taolu loans from private lending, whose principal and lawful interest payments are subject to the protection of Chinese law.
“Taolu loans are intrinsically categorised as a form of illegal criminal activity, and should be subject to legal sanction.”
According to the Opinions taolu loans targeting the elderly, teenagers, students and the disabled have compelled some people to or commit suicide or engage in criminal activities in order to pay back their debts, and should be severely punished unless criminal or judicial law states otherwise.
The Opinions describe several forms and methods of taolu lending which include:
- Perpetrators often advertising themselves as “microloan companies,” “investment companies,” “guarantee companies” or “online lending platforms,” and using the promise of low-interest, collateral free lending to entice victims. Victims are subsequently induced to sign loan agreements for inflated amounts on the grounds of regulatory compliance or the need for guarantee deposits.
- The deliberate fabrication of breach of contract events or the discretionary definition of breach of contract. According to the Opinions perpetrators often create breach of contract “traps” or barriers to repayment, deliberately causing victims to breach the terms of their lending agreements. Perpetrators also often use wilfully broad definitions of lending breaches to force victims to repay false debts.
- Malicious increase of debt amounts. When victims are unable to make repayments, some perpetrators will arrange for their subsidiary companies, affiliate companies or associates to make repayments on behalf of victims by signing new lending agreements for even greater sums.