China bans online lenders from targeting students

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

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Dodgy companies offering loans on campuses had “severely damaged” students’ legal rights and campus security, a new government directive says. Photo: Handout

Published: 8:01am, 19 Jun 2017Updated: 9:24am, 19 Jun 2017

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.

Following a crackdown on credit card companies targeting campuses, many students turned to online lenders for loans to buy smartphones and other small purchases. Photo: Reuters

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.