High-Interest Consumer Loans Banned On Alibaba’s Alipay Platform

A ban has been placed by Alibaba on consumer-loan products which charge yearly interests that are above 24% and which are offered on the online retail giant’s Alipay platform. This comes amidst increased scrutiny from the Chinese government on an online lending industry that is lightly regulated.

In the past year there has been a boom in the online lending sector in China. Following a crackdown on peer-to-peer lenders by Chinese regulators, firms that lend small loans online using capital generated from their own sources have to an extent replaced the P2P lenders. Some Chinese companies such as Ppdai and Qudian have gone on to publicly list in the United States highlighting enthusiasm from investors for the sector. Shares of the listed companies have however recently been on a downward trend as regulatory authorities declare intentions of tightening oversight on the industry.

Loan collection tactics

Among the issues causing concern are default risk, loan collection tactics that are abusive and the possible diversion of the loans into the property market.

“Our inspections discovered that products recommended by a few merchants on Lifestyle have problems such as interest rates that exceed the legal limit and inappropriate collection methods,” a statement from Ant Financial said.

Ppdai and Quadian have also been accused of giving misleading information in their IPO disclosures. While the finance affiliate of Alibaba, Ant Financial, has its own consumer-loan products, loans from other firms are also distributed via Alipay, its mobile and online payments service. Banning of the high-interest loans from the platform coincides with a move by an internet finance multi-agency task force suspending the issuing of new licenses to online consumer-loan firms.

Court ruling

In 2015 the Supreme People’s Court of China made a ruling to the effect that enforcement on loan collection from the courts could only be expected when the yearly interest rates did not exceed 24%. The court added that while higher interest rates reaching 36% were permissible under the law it was up to the lender to figure out how they would repay the defaulted debt.

Since 2008 concerns over the rapid growth of debt in China has mainly concentrated on corporate debt. Per the Bank for International Settlements borrowing by households was 46% of the GDP by the close of this year’s first quarter. In the United States household borrowing was at 79% of the GDP in the same period. Household debt is however rising fast largely due to consumer loans and home mortgages.

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