A publication of the Centre for Advancing Journalism, University of Melbourne

The Global Citizen

Loan sharks target Chinese students

Yuqi Sun, a 20-year-old college student, was tricked into using nude photos as collateral for a college loan. She is among hundreds of thousands of Chinese students caught out by dodgy lenders in recent years.

Yuyang Wang, Yanjing Chen and By Ning Wang reveal the dark side of studying overseas. 

Loan sharks target Chinese students

The shame of falling for a scam can have a profound effect on its victims

In late 2020, the China Consumers Association warned students of “too-good-to-be-true loans” that were conning young people into racking up high levels of debt. According to data from China’s National Anti-Fraud Centre, in 2021 scams involving campus loans exceeded $200 million.

Ms Sun had dreamed of studying abroad, but her parents refused to support her. To realise her dream she had to find the money herself.

“The campus loan officer asked for naked photos of me, along with my ID card, as loan security,” said Ms Sun, who studies journalism at the Zhejiang University of Technology in eastern China. “They assured me the photos would not be used for blackmail.”

When Ms Sun started school in March 2019, a classmate recommended a loan app that promised an easy interest-only loan with only a signature. Ms Sun immediately borrowed $2,000 to pay for an English training course she needed to be able to apply for a student visa.

Within three months, Ms Sun was $20,000 in debt. “Until now, I don’t know why the interest rate was so high. After two missed payments, the annual interest rate is more than 36 per cent,” she said.

“Although my parents will help me repay the loan now, I don’t know if my photos have been destroyed,” said a very upset Ms Sun.

Some students are not lucky enough to have parents step in and repay their loans. Some resort to taking out more loans, creating a debt spiral. Students have also reported receiving threatening telephone calls and even beatings from debt collectors.

In 2020, China Central Television (CCTV) broadcast a report of young women who had been blackmailed into working in the live-streaming porn industry after taking nude photos for loan guarantees.

Loan sharks use social media to recruit

Campus loan operators also recruit students as sales representatives, promising lower-than-bank interest rates and sometimes repayment holidays.

“It’s just a trap,” said Jia Jinze, who said he was lured into selling the loans to other students with promises of reduced interest rates. Mr Jia said it was hard for authorities to pursue campus loan companies because they changed their name often. “The app has changed its name two or three times in the year or so since I started my part-time job,” he said.

Under current laws, campus loans are considered private lending, and interest rates are capped at 24 per cent a year.

“The regulation (of these loans) is not strict,” said Yue Yu, a lawyer at Wenfang Zhixiang Law Firm in Beijing. “Some loan platforms don’t fulfill their obligation to inform applicants of the risks involved, and some lie about the real interest rate to trap students.”

Mr Yu said campus loan outfits often didn’t properly check students had the capacity to repay their loans. “As the bad debt rate of campus loans rises, (we start hearing) negative stories of nude photos, violence and even students jumping off buildings.”

In March 2016, a Henan University of Animal Husbandry and Economics student took out an online loan of A$120,000 in the name of 28 classmates. He took his own life when he realised he could not pay it back.

Later that year the China Banking and Insurance Regulatory Commission (CBRC) moved to strengthen campus credit management, ordering institutions engaged in campus online credit loans to suspend loans targeting students and set out clear repayment terms.

Shady tactics

Mr Yu said lenders asking for potentially embarrassing images of their customers was plainly illegal. “The act of taking nude photos to obtain loans does not constitute a valid loan relationship,” he said.

According to a March 2019 report in the Procuratorial Daily news site, only a few students use campus loan application to support their learning or the cost of living. Most students take out the loans for non-essentials, such as online gambling or gaming.

About 40 per cent of college students spend more than A$1,000 a month, with clothing, digital and food among the top three categories of consumption, according to an Alipay analysis of college students’ financial affairs. However, the students interviewed by The Global Citizen were living on less than $200 a month. The average salary in China in in the third quarter of 2021 was A$2117.

“My roommates all chose to study abroad, and I don’t want to be looked down upon by them,” Ms Sun said. “Without my parents’ support, I have no choice but to use a campus online loan, because if I borrow money from the bank, I need a guarantee from my parents.”

In recent years, the CBRC has issued several regulations designed to crack down on illegal campus loans. These include requirements to regulate the marketing practices of lenders and resellers, and stricter identity verification measures for borrowers.

Mr Yu believes the campus loan chaos is the result of a China’s rapid economic growth over the last decade. “China’s financial regulators have adopted a cautious wait-and-see management strategy towards new things brought about by technological progress,” he told The Global Citizen.

Campus loan companies shift blame

“The companies often accuse students of hiding their age or identity to get loans,” said Cai , a law professor at a university in Hangzhou, who did not want to give his full name. “Parents end up having to help their children repay the loans so as not to damage their children’s future and reputation.”

Universities are trying to help stamp out dodgy student loan practices by warning students about the pitfalls of taking out college loans. “We hold financial security education seminars for freshmen every year,” Cai said. “I believe the education department should strengthen the public’s financial legal knowledge to help college students steer clear of campus loans. That would reduce the demand for such loans.”

 

 

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