Freeing students from the burden of loans
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