When China's Aggressive Debt Collectors Come Knocking : 'You Committed a Sin'

By Stella Yifan Xie

In China, banks and internet lenders trying to collect on a growing pile of overdue credit-card bills and personal loans are resorting to sometimes aggressive tactics to get borrowers to repay.

Since January, when the coronavirus began spreading across China, the country's lenders have been grappling with rising volumes of delinquent consumer loans after many people were confined to their homes for months, suffered pay cuts or lost their jobs. Some banks and online lenders were also hamstrung in their debt collection efforts during a more than 10-week lockdown of the central Chinese city of Wuhan, where many call centers are located.

Before the downturn, the country's consumers racked up record volumes of credit-card debt and short-term loans, as well as mortgages and auto loans as banks and online lenders jockeyed for business while the economy was booming. The proliferation of smartphones and mobile apps in recent years also gave millions of people greater access to loans from online lenders. Many borrowers provided the contact details for their family members and friends when applying for loans.

Now, lenders are racing to recover what they are owed. Many are leaning heavily on debt collectors to track down individuals who have fallen behind on their payments and persuade them to repay. The lenders range from traditional banks to units of some of the country's top technology companies that waded into financial services in recent years.

Zhou Dan, a 30-year-old in the eastern city of Ningbo, had about 300,000 yuan ($42,122) in loans and credit-card debt in April when she was laid off from her job as a clerk at a company that exports pet products. Ms. Zhou said she previously borrowed to invest in the company of a friend, whose business also soured.

A day after she failed to make the minimum payment on a credit card from China Citic Bank Corp., Ms. Zhou said she received more than 10 phone calls and a text message and they have continued for weeks. She was told she could lose her card, be sued and visited at home by debt collectors unless she repays the total amount of 41,445 yuan ($5,840) of loans, which represents about 4.5% of what she owes the bank. China Citic Bank couldn't be reached for comment.

Ms. Zhou was also hounded by debt collectors representing a unit of Meituan Dianping, a large Chinese technology firm that specializes in food delivery and other online services. She said her grandmother, parents and a former human-resources colleague also received calls and were told to tell her to repay the 10,000 yuan she owes the company. Text messages said she could be placed on a government list of "dishonest persons."

"Debt collectors are more unscrupulous now," said Ms. Zhou, who is looking for a new job so she can repay some of the debt. She said she has stopped answering calls from numbers she doesn't recognize.

Meituan, in response to a query, said the debt collection firms it works with are required to comply with laws and industry guidelines when they contact borrowers. The company said it takes customer feedback seriously and will investigate potential violators.

Total delinquent consumer loan receivables could reach 2.8 trillion yuan ($377 billion) this year, up 14% from the end of 2019 and more than doubling from five years ago, according to estimates from iResearch, a Chinese market-research firm. Half the delinquent loans are credit-card debt and the rest are from nonbank lenders, the data showed.

Unlike the U.S., China has no national laws governing personal bankruptcy, though authorities last year signaled their intention to create them. There have been pilot tests in a few cities. That means most individuals can't turn to the courts to get relief from their creditors. Millions of people who defaulted on bank loans and credit cards have instead been placed on government blacklists that bar them from buying real estate, booking rooms in luxury hotels and taking high-speed trains, among other restrictions.

The country has thousands of debt-collection companies. Many are independently run and contracted by multiple lenders. They earn commissions on the money they recover and while financial incentives are higher for loans that have gone unpaid for longer periods of time, those are also much harder to collect.

The industry is loosely regulated at present and China's banking regulators in recent months released draft rules that dictate what are acceptable versus illegal collection tactics. In years past, police have arrested debt collectors who used physical violence and death threats to coerce delinquent borrowers into repaying their debts. Companies that lent money to college students and collected nude photos of borrowers as collateral were also forced to shut down.

In 2018 the National Internet Finance Association of China, a quasiofficial body, said debt collectors should not harass individuals who had nothing to do with the loans borrowers took out, use threats or demeaning language, or pose as government agencies or law-enforcement officials, in addition to other guidelines.

Wang Xiaoting, founder of Beijing-based He Sheng Fintech Co., a company that employs hundreds of individuals to collect debts on behalf of banks and licensed online lenders, said loan delinquencies are rising among young Chinese who borrowed heavily to fund their free-spending ways before the pandemic hit.

For this younger generation, calls to their parents and friends tend to result in higher loan-recovery rates, she said. Older individuals are more likely to repay their debts if calls are made to their employers, Ms. Wang added.

"You need to figure out pain points for people of different ages and cultural backgrounds," said the 41-year-old.

Ms. Wang said her company places limits on the number of calls that debt collectors can make to individuals each day and it uses software to detect the use of certain sensitive words, which she wouldn't detail.

Ye Bin, who co-founded a small construction company, said he hasn't had any income since February due to the work stoppages caused by the pandemic. He earlier borrowed more than 30,000 yuan ($4,207) from an online lender called Shenzhen Xiaohua Network Technology Co. and 40,000 yuan ($5,609) from Ping An Bank Co. to fund his business.

On May 10, the day after he didn't repay what he owed to Xiaohua, Mr. Ye said he received 10 calls from debt collectors. That subsequently went up to 20 calls a day and his brother-in-law also received seven or eight calls within a 10-minute span.

The 31-year-old said his requests to seek forbearance were rejected and debt collectors told him they would continue to call and send text messages to his family members and colleagues until he repaid the loans.

"We will keep finding people who care about you. Let's see if your parents can endure this? You committed a sin, and now you are asking them to share the burden with you?" one of the messages said. Xiaohua didn't respond to a request for comment.

Mr. Ye said he also received numerous calls from debt collectors from Ping An Bank, to which he had pledged his car as collateral for a loan. The calls stopped after Mr. Ye cobbled together funds to make a minimum 1,000 yuan payment two days late.

Ping An Bank said its debt collection process complies with relevant regulations and laws, and that it couldn't discuss details of individual cases.

Write to Stella Yifan Xie at [e-mail]