China’s central bank issues orders to rein in online lenders of payday loans to curb runaway credit

23-Nov-2017 Intellasia | South China Morning Post | 6:00 AM Print This Post

The People’s Bank of China has issued its harshest set of restrictions yet to rein in the country’s online micro-lending businesses, putting a tight leash on an industry that was feeding off young borrowers living beyond their means.

Effective immediately, the central bank and its regional branches must stop licensing any new online micro-loan lenders, while offline “brick-and-mortar” lenders must be constrained to operating within their registered locations, according to the authority’s order, a copy of which was obtained by the South China Morning Post.

“In recent years, some regional authorities have approved the set up of online small lending companies, or allowed small-loan companies to run online lending services, while the consumer lending business provided to some institutions contained relatively big risks,” the bank said in its November 21 instruction.

China’s economy is awash with billions of yuan of cheap capital, as hundreds of micro-loan lenders have sprouted in recent years in place of traditional state-owned banks to provide funding and capital to everything from start-ups and entrepreneurship to personal borrowings. As at the end of June, there were an estimated 200 online micro loan lenders licensed in China.

China’s outstanding short-term consumer loans grew by 1.49 trillion yuan (US$224.7 billion) through the first nine months of 2017, almost double the 830 billion yuan growth in the whole of 2016, according to the central bank’s data.

The Chinese central bank made the move after a number of loans collection agents were exposed to engage in aggressive tactics to hound young borrowers, bringing into question the predatory nature of some lenders, said the Shenzhen Internet Financial Association’s secretary general Zhang Guodong. Payday loans, or unsecured cash advances provided to borrowers with prior payroll records, are particularly egregious, he said.

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“Payday loan companies are just one type of the fast developing small loan companies, a loosely regulated market where some players are running around with online lending licenses issued by provincial level authority, while some operate without even an online business license,” he said. “While several big payday loan companies have already raised billions of dollars of capital at home and in the US, it is worth watching whether the central bank will introduce further restrictions on the interest rate they could charge, or push them to meet stricter requirements.”

Chinese lending companies had already caught wind of the central bank’s impending restrictions, sending the stock prices of US-listed firms tumbling.

US law firm launches investigation into star Chinese payday loan lender Qudian

Qudian Inc, whose stock price has fallen below its $900 million initial public offering level from barely a month ago, tumbled as much as 20 per cent overnight in New York. PPDAI Group Inc, a Shanghai-based competitor, also fell below its IPO price, plunging by 14 per cent overnight to $10.80.

Qudian, backed by Alibaba Group Holdings’ affiliate Ant Financial, may face a class-action suit following the drastic decline of its stock value, according to New York law firm Faruqi & Faruqi, which announced it’s conducting investigations of potential claims against the lender. Alibaba owns the South China Morning Post. Qudian’s spokespersons were unavailable for comment.4


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