Social media sites are full of comments about the Chinese government’s latest move to curb online loans to college students.
A post on Weibo about Huabei and Jiebei, two consumer credit services offered on Ant Group’s Alipay platform, attracted 980 million clicks and generated 40,000 discussions.
That followed a regulatory crackdown on net student loans that are seen as prompting students to borrow more than they can afford.
Under the new rules, so-called “microcredit firms” and unlicensed online vendors are prohibited from granting consumer loans to college students.
In addition, major financial institutions such as consumer finance companies and commercial banks should strengthen their credit risk management, according to a statement from the China Banking and Insurance Regulatory Commission.
China has more than 40 million college students and many do not have access to conventional credit cards, so they turn to online lenders to get money.
Allen Wang, a third-year student at Shanghai Lixin University of Accounting and Finance, said it is high time something was done about the field of student loans, which he called a “kind of crime.”
Wang said he has seen too many classmates who have developed irrational spending habits and fallen into overwhelming debt due to the easy money available online.
The “buy now, pay later” lifestyle isn’t just about financing your education. Many students buy expensive shoes, handbags and other non-essential items, he told the Shanghai Daily.
His indulgent lifestyle is fueled by online credit services like Huabei, also known as Ant Check Later, and Baitiao, a virtual credit card service from e-commerce giant JD.com.
These services provide consumers with generous spending limits and require reimbursement on a specific date, usually the following month.
Huabei, which literally means “just spend” in Chinese, was originally created in 2014 as a way for Alipay users to fund purchases on shopping websites such as Taobao and Tmall, all run by the giant Alibaba Group.
In addition to the temptation to “buy this month, pay next month” and the 40-day interest-free period, Huabei also introduced Ant Installment, which allows consumers to pay in installments of three, six, nine, or 12 months.
By initially lending very small amounts to new borrowers and then increasing their credit limits, the microcredit business has quietly expanded to become the largest digital consumer credit service in China. Ant Group has rated Huabei and Jiebei as “the most widely used consumer credit products” in China.
Huabei is provided by Chongqing Ant Small & Micro Loan Co; Jiebei is offered through Chongqing Ant Shangcheng Micro Loan Co.
During the 12 months ending in June 2020, Ant Group reported credit balances for some 500 million users, according to documents filed on the Shanghai and Hong Kong stock exchanges.
A typical Huabei customer is young and internet savvy, with a penchant for spending. Ant describes the service as inclusive, convenient, and an aid to building a credit history.
Student Wang said that most of his classmates have applied for credit through Huabei. He got involved in the service himself through discount offers and interest-free installment payments.
“However, there is a problem,” said Wang. “Once you’ve opened an account with Huabei, it’s easy to forget you’re spending other people’s money until the bill comes.”
For borrowers who don’t pay on time, online lenders impose high interest rates and other fees.
Douban, a social media service, reported that the annualized real interest rate on the Renrendai loan platform, for example, was 48 percent, and on the Niwodai platform, 76 percent. That’s well above China’s prime loan rate, a benchmark rate for bank loans.
In a group called Union of Debtors in Douban, around 40,000 registered users shared their experience of being victims of loan sharks. A considerable number were university students.
A graduate surnamed Zhao said she borrowed 10,000 yuan (US $ 1,536) online for a new iPhone and then became addicted to easy money. Everything got out of hand to the point where he found out that he owed a total of 100,000 yuan to various internet platforms. Collection calls flooded.
His family, who were by no means wealthy, paid off their debts by selling a house.
Comparatively, the interest rate on Huabei loans is not high. In the 12 months ended June 30, the daily interest rate for most Huabei users was 0.04 percent or less, Ant Group reported. However, the online lender reportedly began lowering credit limits for young borrowers late last year.
Wu Xin, a second-year student at Beijing University of Information Science and Technology, recently discovered that his Huabei account limit was lowered from 2,500 yuan to 2,000 yuan.
“Generally, the limit provides me with enough money, plus the living expenses my parents give me,” he told the Shanghai Daily.
He said he used Huabei mainly to pay for food, cosmetics and clothing deliveries, and insisted that he make payments on time every month.
The problem of excessive student loans has been going on for a long time, with new government measures designed to control it being rolled out from time to time over the past few years.
Late last year, national regulators launched a crackdown on Ant and other non-bank financial services online. Many online lenders have reinvented their images, while others claim that they do not offer student loans.
WeBank, China’s first private and exclusively digital bank, told the Shanghai Daily that its Weilidai loan service, which offers small credit loans, has not been available to college students under the age of 23 since its launch in 2015.
Du Xiaoman Financial, a spin-off of Baidu, did not respond to request for comment on its Umoney microloan business.
Registered users between the ages of 18 and 55 can apply for an account with Umoney with their ID card and bank card, according to information posted on the company’s website.
The website said that the product was not available to students.
However, it is difficult for online lenders to identify whether or not applicants are students, industry experts said, noting that scrutiny can be quite lax.
HomeCredit, a licensed consumer finance firm, said it stopped lending to students in 2013 but finds that many users hide their student status.
“In such cases, we investigate further and if we find that a borrower is a student, we provide information on how to terminate the contract,” the company said.
Negligence, however, still exists in such a vast and attractive market. Many college students are not very financially savvy and are easily lured into predatory lending, said Su Xiaorui, an expert on consumer finance.
The new regulations require universities to take responsibility for promoting financial awareness among students and helping them develop rational spending habits. He also advises the university to take the initiative to work with banks to help students with cash flow problems.
Donghua University and Fudan University in Shanghai have published articles offering advice for students on how to protect themselves against financial fraud.
Some banks are taking steps to help students, but most remain wary of full-blown student loans.
China Guangfa Bank is promoting its “Be Real” credit card, which is exclusively for university students, on the WeChat account of Tianjin University of Finance and Economics.
The card does not charge annual fees and only requires a five-minute online application. Applicants are reimbursed 80 yuan, and if they are lucky, they can get an internship at the bank’s Beijing branch.
The PingAn Bank credit card center said it does not have cards aimed at college students. Post Savings Bank of China once offered loans to MBA students at the University of International Business and Economics.
China Merchants Bank has been offering student credit cards since 2015. Students must deposit money on the cards before making purchases, but they also get discounts on catering services and movie tickets.
Cards like the Young card, Hello Kitty card, King of Glory card are popular with students, people familiar with the matter said.
“Cultivating reasonable spending habits is a long-term process,” Qian Lu, a 45-year-old Shanghai resident, told Shanghai Daily.
When her daughter was still a teenager, Qian said that she helped her open a bank account to save money and taught her good spending habits. Thanks to these efforts, her daughter, at the age of 21, is not spending beyond her means, she said.