Only a limited number of banks will be allowed to offer credit on campus under a directive aimed at unscrupulous firms preying on young people.
Beijing has banned online lenders from extending credit to university students following public outrage over young people falling victim to loan sharks charging exorbitant rates.
Only a limited number of authorised banks are permitted to make loans to students, according to a joint directive by the China Banking Regulatory Commission, the Ministry of Education and the Ministry of Human Resources and Social Security.
Online lenders with existing loans must specify a schedule to withdraw from the business, it said.
The directive, published on the website of the Finance Office of Jiangxi province, is the latest attempt by the government to address a grey area of the consumer lending market that has seen some students paying sky-high interest rates for taking out small loans for minor purchases such as smartphones.
In 2009 regulators shut down credit card business targeting students amid concerns over a lack of protection. Students, seeking loans for small-ticket items such as phones or fashion items, turned instead to online peer-to-peer (P2P) loan platforms for credit.
Last year, six government agencies tried to regulate online lending, but some companies continued to target university students and offered dodgy loans that “severely damaged the students’ legal rights and campus security and created adverse social effects”, according to the directive. By February, 74 internet financing companies continued to offer loans aimed at students, according to the Dahe.cn newspaper website.
The directive requires all P2P lenders to suspend business targeting university students and make plans to wrap up their programmes.
Those that do not cooperate will have their entire internet loan business suspended and face possible charges for fraud, use of physical intimidation to collect loans and the spread of obscene materials.
In the past, some female students have offered up naked pictures of themselves – in some instances as they held up their identity cards – to loan sharks as a form of collateral, according to mainland media. Some pictures were leaked online when they failed to make payments on time deadline. Some women were forced into prostitution by loan sharks, according to reports.Last year a young woman at a college in Hefei, Anhui province, borrowed 2,000 yuan (US$290 or HK$2,300) in her first year, but her debt spiralled into 500,000 yuan owed to 59 lenders. She faced 30 per cent interest a week.
She gave nude selfies to the internet loan companies as a guarantee and her father was forced to sell their family home to pay off the debt, according to China Youth Daily.
Universities have also been ordered to educate students on the risks of accumulating debt and ban promotional campaigns for loans from campuses.
Zhao Xijun, a finance professor at Renmin University of China,，said authorities were stepping up regulations to better protect students.
“Even though some financial institutions are approved to run s o-called campus loans, their financial products might not be suitable for university students, whose risk awareness is not strong and whose ability to repay the money is limited.
“The tough measures in the directive can become a foundation of punishment for future offenders,” Zhao said.
By Zhuang Pinghui