Banks, InspirAsiaJune 16, 2016

Chinese borrowers told to post nude photos as collateral

By Lucy Hornby for Financial Times

Debt recovery tactics grow more aggressive as economy slows and loans sour

The aggressive tactics are an example of the drastic debt recovery measures that are being employed in the slowing Chinese economy.

The democratisation of finance in China via peer-to-peer lenders and the vast shadow banking system, with interest rates sometimes topping 30 per cent, have proved an inflammatory mix and fuelled a surge in souring loans.

Female college students in the southern province of Guangdong were told to hand over naked photos of themselves holding their ID cards, with lenders threatening to make them public if they failed to repay their microloans, according to the Nandu Daily, the local newspaper.

While these loans were brokered on Jiedaibao, the P2P online lending platform denied direct involvement as the two parties subsequently agreed terms over another channel. “This is an illegal offline trade between victims and lenders who did it by making use of the platform,” a representative said when contacted by the Financial Times.

Blackmailing with nude photos joins a long list of threats including property destruction and bodily injury committed by loan sharks attempting to collect unpaid loans.

“If they borrow from banks there is no threat to personal safety. But if they borrowed from private lenders, especially high-interest lenders, it can happen,” said bankruptcy lawyer Han Chuanhua of the Zhongzi Law Offices in Beijing.

“If they can’t repay sometimes the high-interest lender sends people to their homes. Mostly they threaten, but sometimes they take action. These types of people don’t go through legal channels.”

One of Mr Han’s clients once had his legs broken by thugs reporting to private lenders. Others have had people come to their offices to “bash things up”.

Shadow banking funds flow from lending rings formed by local entrepreneurs or individuals who attract and pool capital for lending to those shut out of the conventional banking system. Online P2P lending sites have allowed the broader public to become both borrowers and lenders.

Loans carrying interest rates greater than four times official rates are considered “loan shark” lending in China and the creditors’ rights are not protected under Chinese law, according to Wen Daoquan, a lawyer writing in an online post on disputes involving high-interest loans. Loan sharking itself is not illegal but collectors can’t use “inappropriate means”, he wrote.

Migrant workers, with their unstable employment and reluctance to involve police, are especially vulnerable. “If they can’t repay they usually harass their families,” said a representative at a popular legal hotline for migrant workers.

Additional reporting by Wan Li and Michelle Winglee

First appeared at Financial Times