China bans online lending for students' best interest
Students have been reported to resort to these companies through websites and apps to finance small loans so that they can afford to buy new gadgets and clothes. Source: Shutterstock

In its toughest move yet, the Chinese government has outlawed peer-to-peer (P2P) online lending to university students, an unregulated industry that targets students with false advertising and leaves them with high debts to sustain their excessive buying habits.

South China Morning Post reports only a few banks will be allowed to extend credit to those in universities, according to a joint directive by the China Banking Regulatory Commission, the Education Ministry as well as the Human Resources and Social Security Ministry. A copy was released by the Jiangxi provincial government on its website last Friday.

The crackdown is for the students’ sake, Zhao Xijun, a finance professor at Renmin University of China, said.

“Even though some financial institutions are approved to run so-called campus loans, their financial products might not be suitable for university students, whose risk awareness is not strong and ability to repay the money is limited,” Zhao said.

“The tough measures in the directive can become a foundation of punishment for future offenders.”

Those without a credit history or parental approval can borrow money to buy a smartphone with help from these online lenders. Source: Reuters.

The crackdown comes in the wake of heightened concerns over the effect of P2P lending for university students with little financial literacy. Students have been reported to resort to these companies through websites and apps like Fenqile to finance small loans so that they can afford to buy smartphones, pay for holidays, or get the latest sneakers.

Last year, Beijing placed a CNY1 million cap on the maximum amount individuals can borrow from these P2P sites.

In its latest assert of control over the largely unregulated industry, lenders with existing student loans will also have to present a schedule to withdraw from the business, the government directive said.

BBC notes a microfinancing portal called Wangdaizhijia lists at least 500 such platforms, although the exact number is unknown.

Students who have used these sites fall prey to sky-high interest rates from regulated banks and resort to scrupulous practices such as requiring borrowers to send nude selfies as collateral. Defaulters end up with spiralling debt and more than 100 of them had their naked photos and contact details leaked online last December, SCMP reports.

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