China’s Banking and Insurance Regulatory Commission (CBIRC) and four other government bodies have specified that all micro loan firms in the country cannot extend consumer loans to university students, according to an announcement on Wednesday.
On the other side, banks have been allowed to extend consumer loans to students to meet their reasonable needs, but only if parents are willing to continue paying if their children are unable to do so. It’s one of the risk-control measures stated in the note which was jointly issued by the CBIRC, the Ministry of Education, Ministry of Public Security, People’s Bank of China, and Cyberspace Administration of China.
This student-specific regulation comes amid a crackdown on online loans by authorities to avoid systemic risks, KrASIA reported earlier.
“I feel this regulation is good for us in general, and can help students who tend to overconsume,” a Beijing-based college freshman surnamed Gao told KrASIA. “However, a loan quota might be better than an absolute ban,” she added. For the student, a RMB 1,000 (USD 154) limit looks reasonable since that can meet a student’s unexpected needs and is payable for most families.
A postgraduate student based in Northeastern China, surnamed Qiao, shared her support for the regulation, but also a concern: “Some students in urgent need may turn to illegal apps to borrow at even higher interest rates in absence of well-known channels such as Huabei and Jiebei.”
The authorities explained that some microlenders were teaming up with tech firms and lured students to borrow money beyond of what they were able to afford, subjecting them to heavy debt.
Snowballing debt
While the authors didn’t name any specific companies, the Xinhua-owned magazine China Comment in September run a feature on how online loans are causing problems to college students, involving major internet companies. It said that students defaulted during the pandemic, unable to earn money from their part-time jobs. Debts started to snowball when they made new loans to pay back old ones.
Hangzhou-based Shen told the magazine that as a student with no formal income, he had been granted a credit line of about RMB 20,000 (USD 3,075) to RMB 30,000 (USD 4,612) on each internet platform. JD.com was pushing coupons to him each week to market the Baitiao buy-now-pay-later service. He said that Meituan Jieqian, Alipay via Huabei and Jiebei, and even Xiaomi Finance advertised online loan services to him.
Post-graduate student Qiao, 24 years old, found on Thursday that she could still borrow RMB 5,000 at Huabei to pay for goods bought on Alibaba’s Taobao, and RMB 16,000 from Meituan as a direct cash loan, at a time when the ban has already been effective.
No quota left
“I do not have any quota to borrow currently,” Beijing-based student Gao, 20 years old, told KrASIA, after checking her Huabei and Jiebei loan service on the Alipay app, as well as the Meituan Jieqian service.
Peng Pai, who said he worked with Jiebei in 2019, confirmed on social media that the age of 22 was a decisive factor, as that is when undergraduate students normally graduate, but admitted that the system could not be 100% correct.
Ant Group, JD Technology, Meituan, and Baidu’s affiliate Duxiaoman didn’t respond to KrASIA’s inquiries on how they identify students, the amount of outstanding and unpaid loans, and on how they will adapt to the new regulations.
“There are still details that need to be clarified, such as whether university students include postgraduates and doctoral students, who don’t have normal income either in general, and whether lending contracts are deemed invalid if micro loan firms fail to recognize a borrower’s ‘university student’ status,” said Cao Lelong, a lawyer with Zhonglun W&D.
Irregularities could subject microlenders to penalties such as business suspension and a withdrawal of their license, he added.