China mulls credit card rules

Draft statute seeks to clarify charges, penalties

China’s Supreme Court on Wednesday released a draft statute that seeks to overhaul various aspects of the country’s regulations for the credit card market, amid rising use of credit cards and increasing cases of fraud and disputes.

In the draft, the Supreme People’s Court of China (SPCC) proposed unifying rules for banks charging interest on credit card overdrafts and to clarify legal responsibility for banks and cardholders in cases of fraud.

The court said it supports the idea of cardholders paying interest only on what they owe to the banks after they have paid a minimum payment, rather than on the full overdraft amount. Currently, some banks charge interest on the total overdraft even after the cardholder has provided the minimum payment, according to some media reports.

The draft also sought to set a maximum interest rate and penalties for overdrafts, saying that the court does not support penalties that exceed 36 percent of the annual interest rate.

The key issues that the SPCC aims to address are the normalization of rules for interest charges, penalties for credit card overdrafts and improving transparency, said Dong Dengxin, director of the Financial Securities Institute at the Wuhan University of Science and Technology.

Dong also told the Global Times that some banks, in order to promote their credit cards, do not properly disclose potential fees and penalties for overdrafts.

“At the moment, banks’ issuance of credit cards is a mess. Because of vicious competition, some banks, in order to boost credit card usage, ignore problems in their system,” he said, adding that the “the key is to improve bank transparency, especially on their charges.”

The use of credit cards in China has seen steady growth in recent years. At the end of 2017, there were 588 million credit cards and debit-credit duo cards in use in China, up 26.35 percent year-on-year, according to a report released by the People’s Bank of China, the country’s central bank, on March 5.

The number of fraud cases involving credit cards is also on the rise. In 2016, the number of credit card fraud cases handled by the country’s court system rose 3.8 percent from a year earlier, according to the most recent data released by the SPCC in October 2017.

Dong said that the rising number of credit card disputes and cases of fraud could potentially create risk in China, both financially and morally, and is counterproductive to the country’s effort to build a comprehensive credit system.

The SPCC draft statute, which is seeking public comment until June 30, also sought to clarify different obligations for banks and cardholders in preventing fraud, stating that the banks are obliged to inform cardholders of transactions on time, while cardholders are obliged to take immediate remedial action after being informed.

The court said that the new rules aim to ensure the “proper” handling of bank card disputes and to protect each party’s legal rights.