China’s murky debt collections get new rules: don’t harass, no late-night operations, don’t enter homes uninvited
- With household debt at worrisome levels, curbing consumption and China’s economic recovery, Beijing is interjecting in the largely unregulated process
- Move aims to curb aggressive tactics to recoup arrears while also educating borrowers and reminding them to read documents carefully
Aiming to address a surge in disputes over payments in a time of mounting household debt, China has issued new guidelines for responsible lending and collection.
The new rules, outlined by the National Internet Finance Association of China in a circular to members on Wednesday, 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 that lenders often outsource collection to.
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 swelled from 18.4 per cent to around 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.
