Careless on the Chinese campus

Proliferation of consumer finance channels online and their targeting of university students, who usually do not hold credit cards, in a bid to gain new customers and market share have led to tribulations and tragedies on campuses in China.

The most shocking incident involved Zheng Dexing, 21, a student of the Henan University of Animal Husbandry and Economy. He jumped to his death off a hotel building on March 9, unable to repay 589,500 yuan ($89,320) he had borrowed from various online lending platforms.

In a sense, Zheng's death can be linked to the internet-driven easy consumer finance market that makes it possible for young adults to avail credit beyond reasonable limits, often by exploiting loopholes and poor checks in the system.

It emerged that Zheng took loans from as many as 14 online microlending platforms. He could do so by misusing his own student ID card as well as those of 28 other students. He had even written the family addresses of other students in his loan application forms, so that lenders could not detect his existing credit records.

He bought iPhones through installment plans and resold the premium smartphones for cash, which he then splurged on soccer betting.

After his death, the 28 students said they were victims of Zheng's misrepresentations and hence should not be held responsible for pending loan repayments.

For its part, the Henan University of Animal Husbandry and Economy warned its students against borrowing money from online loan firms.

That marked a full circle for microlenders who, in recent years, grew rapidly by selling consumer credit products to a variety of target groups, including college students.

Their "buy first, pay later" idea was easy to sell. Credit service users could choose between delayed payments and repayments in installments. Students need to spend just five minutes to fill in the consumer credit application online.

Later, they are required to take their citizen ID card as well as the student ID card to the lender's on-campus agent for verification. Typically, the agent takes less than an hour to approve credit.

Too easy, it seems, compared to the high barriers to obtaining credit cards of banks and other financial services firms.

Agreed Huang Zhen, a professor of the law school of the Central University of Finance and Economics. He called for a change in the way credit is extended to students.

He said "lenders must assess borrowers' ability to repay and proactively counsel them against taking undue risks". Instead, in the current scenario, some lenders operate on university campuses with impunity, compromising on standard industry practices for the sake of gaining customers and market share.

Huang said college students generally lack risk awareness and the ability to manage personal finances. Given the emergence of online consumer finance channels, perhaps it is time for universities and colleges to introduce regular counselling sessions for students on personal finance, he said.

Wang Wei, managing director of a high-tech industrial investment fund, said various on-campus lenders usually do not exchange information amongst themselves, so it is very easy for an individual to borrow from multiple lending platforms.

"Some cash-strapped lenders even employ students as their part-time on-campus agents as they are unable to afford full-time staff. Such agents only care about earning commissions, and do not pay much attention to prudential norms and risks. Some of them even collude with fellow students and accept false or forged documents attached to loan applications," Wang said.

He further said each university should set up its own student finance center to oversee the whole process. Such a center should ensure students' loan applications are evaluated by independent experts.