Free­ing stu­dents from the bur­den of loans

China Daily (Hong Kong) - - VIEWS - Edi­tor’s note:

Cam­pus loans have been fraught with prob­lems across China. Some col­lege stu­dents, who fell into a fi­nan­cial trap af­ter bor­row­ing money from loan sharks, have com­mit­ted sui­cides, fled their homes, or set­tled their debts with sex­ual fa­vors. To pre­vent stu­dents from fall­ing into a debt trap, the China Bank­ing Reg­u­la­tory Com­mis­sion and the min­istries of ed­u­ca­tion, and hu­man re­sources and so­cial se­cu­rity re­cently banned peer-to-peer on­line lend­ing com­pa­nies from do­ing busi­ness on cam­puses. Two fi­nan­cial law ex­perts share their views with China Daily. Ex­cerpts fol­low:

Peer-to-peer on­line lend­ing com­pa­nies have been banned from of­fer­ing loans to stu­dents on the cam­pus, and com­mer­cial banks and con­sumer fi­nance com­pa­nies au­tho­rized by the CBRC will take over this busi­ness, says a re­cent no­tice is­sued by the min­istries and the CBRC. The no­tice also says ex­ist­ing on­line lenders must with­draw from the mar­ket, and com­pa­nies sus­pected of be­ing in­volved in fraud, vi­o­lence and spread­ing ob­scen­i­ties are sub­ject to pros­e­cu­tion.

The chaos caused by peer-topeer on­line lend­ing on cam­puses has ru­ined the lives of many stu­dents. Many on­line loan plat­forms used their low-in­ter­est thresh­old for loans to lure young stu­dents, who more of­ten than not spent the money to buy ex­pen­sive prod­ucts such as smart­phones. And once the stu­dents were un­able to re­pay their first debt, many of them re­sorted to tak­ing new loans from other loan sharks to re­pay it, and un­wit­tingly en­tered a vi­cious cir­cle of bor­row­ing and re­pay­ing debts. Many on­line loan plat­forms run by loan sharks made the in­ter­est rates ap­pear very low — for ex­am­ple, 0.1 per­cent to 0.2 per­cent. But if cal­cu­lated on an an­nual ba­sis, the rates could be more than 100 per­cent.

Many of the loan sharks used

ex­treme mea­sures to get their money back from the stu­dents. Some of them de­manded nude pho­to­graphs from the fe­male ap­pli­cants as “col­lat­eral”, which they threat­ened to post on­line if the bor­row­ers de­faulted. Some fe­male stu­dents who couldn’t re­pay their loans com­mit­ted sui­cide to save their and their fam­i­lies’ honor.

The au­thor­i­ties’ ef­forts to curb this dis­turb­ing trend should, there­fore, spread fi­nan­cial and le­gal knowl­edge among col­lege stu­dents, by in­clud­ing fi­nan­cial cus­tomer ed­u­ca­tion in col­lege cour­ses, for ex­am­ple. And uni­ver­si­ties, and fi­nan­cial reg­u­la­tors and as­so­ci­a­tions must launch a joint cam­paign to teach col­lege stu­dents how to dis­crim­i­nate be­tween le­gal and qual­i­fied lenders and frauds.

Yang Dong, vice-dean of Law School, Ren­min Univer­sity of China

The orig­i­nal aim of al­low­ing on­line lenders to give loans on the cam­pus was to of­fer fi­nan­cial as­sis­tance to stu­dents who wanted to start their own busi­ness, or to meet their other fi­nan­cial needs, such as pur­su­ing a ca­reer, be­cause they couldn’t get loans from big com­mer­cial banks.

Our sur­vey shows some col­lege stu­dents do need money, and we even ex­plored the pos­si­bil­ity of giv­ing non­profit loans to stu­dents to help them get jobs or be self-em­ployed.

The peer-to-peer on­line lend­ing busi­ness grew at an ex­cep­tional pace af­ter the vac­uum left by banks that stopped is­su­ing con­sumer loans and credit cards to stu­dents 18 years ago.

The re­cent no­tice is­sued by the CBRC and the min­istries should not be in­ter­preted as shut­ting the door on cam­pus loans. In­stead, the no­tice is in­tended to let banks and qual­i­fied in­sti­tu­tions to take over the busi­ness, in order to pro­tect stu­dents against loan sharks. For ex­am­ple, China Con­struc­tion Bank and Bank of China have started is­su­ing loans tai­lored for col­lege stu­dents with rel­a­tively low in­ter­est rates of 5.6 per­cent and 5 per­cent, re­spec­tively.

Banks have now adopted sev­eral ma­ture tech­ni­cal mea­sures to avoid bad debts. For ex­am­ple, now they can main­tain the credit records of stu­dents, which help them de­ter­mine how much loan can be is­sued to a cer­tain stu­dent to man­age the risks. Since some stu­dents are prone to splurg­ing the money they bor­row on fancy prod­ucts, the banks can now di­rectly put the money into the nec­es­sary chan­nels — for in­stance, if you ap­ply for trans­porta­tion loan, the bank could di­rectly pay for the ticket in­stead of giv­ing you the money to do so.

And that only some banks and in­sti­tu­tions have started giv­ing cam­pus loans in­di­cates that reg­u­la­tors are try­ing to set the right ex­am­ple for the mar­ket.

Huang Zhen, direc­tor of Fi­nan­cial Law In­sti­tute, Cen­tral Univer­sity of Fi­nance and Eco­nom­ics


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