Move to rein in tactics of dubious debt collectors
New guidelines lay out standard practices for lending amid a surge in disputes over charges
Beijing has issued new guidelines for responsible lending and collection as it seeks to address a surge in disputes over payments in a time of mounting household debt.
The new rules, outlined by the National Internet Finance Association of China in a circular to members, lay out a set of standard practices for debt collection along with a call for lenders to deal fairly and transparently with borrowers.
The instructions state that financial institutions should “comprehensively and objectively evaluate” borrowers’ reasons for seeking loans and their repayment ability; ensure key terms and conditions are clearly stated in contracts; and remind borrowers to read loan documents carefully.
Lenders should also “guide borrowers to borrow rationally and plan repayment reasonably”, it said. The guidelines cover lenders from large commercial banks to small consumer finance companies, as well as third-party agencies to which lenders often outsource collection.
Household debt has surged in China since the 2008 financial crisis, as households flocked to invest in the country’s property boom and as rising incomes expanded access to credit.
In the decade to 2018, China’s ratio of household debt to gross domestic product (GDP) swelled from 18.4 per cent to about 52.1 per cent, according to the National Institute for Finance and Development (NIFD).
Leverage continued to rise during the pandemic as consumers suffered pay cuts, lost their jobs or struggled to service existing debt.
By the end of March, household borrowing had reached 64 per cent of GDP, according to the Beijing-based think tank – teetering on the brink of a 65 per cent red line drawn by the International Monetary Fund as a warning point about financial risks.
Meanwhile, non-financial corporate debt had risen to 174.1 per cent of GDP through March, up from 161.5 per cent four years ago, the NIFD found. China’s overall debt also hit a record high, rising to 294.8 per cent of GDP from 260.9 per cent over the same period.
But with lenders moving to make good on loans, the unregulated sector of private-debt collection – notorious for employing murky tactics ranging from harassment to aggression – has drawn scrutiny from Beijing.
In mid-2023, the Hunan Yongxiong Asset Management Group, one of China’s largest debt collection companies, announced it would suspend operations after its offices were raided by police.
Last month, the group said on its WeChat account it would no longer directly take part in collections and would transition to a “technology service” supporting the industry at large.