In the past three years, the media has highlighted many stories about college students who have fallen into debt as a result of using peer-to-peer lending platforms. These platforms, many of which are unauthorized and unregulated, are usually based on the internet and have no connection with the established banking system. Many charge exorbitant rates of interest.
In some cases, lives have been damaged and some students have been pushed to commit criminal acts as they seek to repay their debts.
In some cases the results have been more serious and even life-threatening. In April, a sophomore in Xiamen, Fujian province, killed herself because she was unable to repay 570,000 yuan ($85,448) she had obtained via a peer-to-peer lender, according to reports in Fujian Daily.
Earlier this year, the Inner Mongolia Morning Post reported that about 900 university students in the autonomous region were cheated out of more than 9 million yuan after they signed up for a "promotion" that purported to offer iPhones for 800 yuan, rather than the usual price of about 2,000 yuan. In fact, they had unwittingly applied for loans from a peer-to-peer platform and were quickly pressured to repay the money at high rates of interest.
Now, experts are calling for the sector to be more strictly regulated to prevent abuse.
"Peer-to-peer lending has become a hot topic among college students, but it has turned out to be a social issue, not just a simple financial problem," said Feng Lirong, a prosecutor at the Dongcheng district people's procuratorate in Beijing.
"The market needs urgent regulation because some loans have put students in danger and even led some to commit crimes."
Gangs and fraud
Although there are no nationwide statistics related to criminal incidents linked to peer-to-peer lending, a number of provinces and regions have released data that illustrate the gravity of the situation.
In May, police in Jilin province said they had handled 193 cases related to the issue, busted three gangs and detained 31 people suspected of using the system to defraud would-be recipients.
In one case, a number of suspects are alleged to have defrauded about 100 students at seven colleges of more than 4 million yuan, according to the Public Security Bureau in Changchun, the capital of Jilin. The men urged the students, who were seeking part-time work, to register with an "employment agency" that was actually a peer-to-peer lending platform. The students quickly came under pressure to meet the monthly repayments.
In July, Nanfang Daily interviewed a female student who told how she was pushed to provide nude photos of herself as security for a loan of 3,000 yuan.
"Those reports shocked me," Feng said. "Despite being 18 and older, many students are similar to minors because they lack financial knowledge and are easily cheated."
She added that lax supervision has allowed the peer-to-peer loan market to run out of control.
The first attempt to address the problem came on May 27, when the China Banking Regulatory Commission, the Ministry of Education and Ministry of Human Resources and Social Security issued a notice banning unauthorized loan platforms from engaging in the business, especially those that target college students.
Yao Jianlong, a professor of law at Shanghai University of Political Science and Law, praised the regulation, but felt that it didn't go far enough. He said it is more important to improve standards in the industry and to design loan platforms that cater for the specific needs of college students.
According to Xiong Bingqi, deputy director of the 21st Century Education Research Institute in Beijing, the growth of peer-to-peer platforms in colleges can be attributed to the rapid development of the internet and the decline in credit card use among students.
During the first 10 years of the century, less well-off college students usually turned to credit cards when they needed a source of extra finance, he added.
At the time, banks－most of them State-owned－regarded the student market as an important part of their business and competed to issue credit cards to them. The practice resulted in a situation where many students held several credit cards issued by a number of different banks.
Initially, business was good, but it quickly became mired in controversy after a series of headline-making stories about irrational consumption, swollen overdrafts and failures to repay debts. That resultant bad publicity led banks to become wary of issuing credit cards to students.
"However, as a young group with strong consumption demand, the students' needs were still there. Against such a backdrop, peer-to-peer lending, a substitute for credit cards to some extent, started to mushroom via the fast development of the internet," he said.
Yao said many peer-to-peer lenders specifically target college students, who usually have little money or unstable incomes but have great consumption potential.
Those factors have led to the growth of unscrupulous operators who are thirsty for profits, but lack standards or regulations.
"These platforms call themselves 'peer-to-peer lenders for campuses', but actually some are disordered and a large number have failed to obtain authorization from the banking regulators. That has resulted in tragedies for some students and pushed others to commit crimes, such as fraud," he added.
According to a survey by wdzj, a website that provides information about the peer-to-peer loan industry, there were about 3,000 such platforms in 2015, and 108 of them targeted students exclusively.
Statistics from Mingxiao Loans, a company that lends money to college students, show that from April last year to July, at least 41 cases of fraud related to on-campus peer-to-peer lending were reported at educational establishments in 22 provinces and regions.
According to Yao, some platforms charge annual interest rates of 20 percent or more, meaning that even a small loan can snowball until the interest becomes too large to repay.
Most students who are unable to repay loans but don't want to tell their parents turn to friends or classmates for help, but some have used other people's personal details to borrow money through other channels, thus getting deeper into debt and further exacerbating the problem, he said.
A few female students even provided nude photos of themselves as security when they borrowed money via illegal channels, putting their safety and reputations in danger, he added.
Feng said the problem needs to be resolved quickly: "In addition to being harmed, some students have even become offenders, blindly believing the people cheating them and helping them to swindle others in the name of buying peer-to-peer services."
The guidelines issued by the banking regulator and ministries in May are designed to strengthen supervision of on-campus peer-to-peer lenders. Platforms that have not obtained authorization from the banking regulator are now banned from entering the market and existing lenders have been instructed not to provide temporary loans for new clients. They must also ensure that their businesses adhere to the regulations.
The new rules also state that platforms found to have harmed students, such as those complicit in fraud or other illegal activities, must be reported to public security departments or the courts. Meanwhile, colleges nationwide must take greater responsibility by banning unauthorized individuals or platforms from promoting their businesses on campus.
Chu Zhaohui, a researcher with the National Institute of Educational Sciences, said colleges and parents must root out the problem by helping to raise young people's levels of financial literacy.
"There's no need to eradicate peer-to-peer lending on campuses. After all, it has provided students with a convenient way of obtaining money and has met their demands, to some extent," he said. "Under strict supervision, it's possible that these lending platforms could play a more positive role in students' lives at college."
Xiong, from 21st Century, suggested that financial institutions, the education authorities and colleges should work together to launch micro-lending programs to help students overcome temporary financial difficulties, or to start their own businesses.
"A larger number of qualified platforms or channels should be established for students to provide them with choices and ensure they don't feel the need to turn to illegal or unauthorized organizations," he said.
Feng, the prosecutor, urged colleges to provide students with more training, especially in matters related to finance and loans, and help them understand the law by analyzing cases, which could stop them from falling into a vicious circle of debt, excessive interest rates and more debt.