Lenders plagued by ‘deliberate defaults’

By Li Xuanmin Source:Global Times Published: 2017/3/28 23:38:39

Debt collectors grow as court rulings ignored

Illustration: IC


The legal system has loopholes in terms of protecting the rights of private creditors, especially when some borrowers "deliberately default on loans," and that situation has driven the growth of debt collection agencies, several private lenders told the Global Times on Tuesday.

Their comments come amid a public controversy over the "Shandong loan shark killing" case, where a man called Yu Huan reportedly stabbed and killed one of his mother's debt collectors, to whom she owed 170,000 yuan ($24,696.37). Yu claimed that debt collectors insulted and threatened his mother, Su Yinxia, in front of him for more than an hour.

Su's company, Shandong-based Yuanda Gongmao, borrowed 1.35 million yuan at a 10 percent monthly interest rate from a local real estate company, which later hired the debt collectors. As of April 2016, Su had repaid 1.84 million yuan in principal and interest and signed over a property valued at 700,000 yuan, but she was unable to pay the remaining 170,000 yuan.

Although Su was obligated to repay the debt, the case has led to public questions about why the real estate company didn't pursue legal avenues to collect the debt and instead employed a third-party collection agency.

Hao Junbo, a lawyer at Beijing-based Hao Law Firm, said that if the creditor had taken the case to court, the ruling would have favored Su, the defendant. "The 10 percent monthly interest rate charged by the loan shark is far above the 36 percent annual rate, which translates to a 3 percent monthly rate. That's a threshold within which China's legal system should offer protection," Hao told the Global Times on Monday.

But the case also highlighted private creditors' dilemma in the absence of effective legal resolution, according to a manager at Beijing-based peer-to-peer (P2P) lending platform, who prefers not to be identified. He said that his company has made billions of yuan in loans with monthly interest rates mostly below 3 percent. 

"As a private lender, we stand when extending credit but kneel when it comes to begging debtors to pay it back," he complained, noting that the number of laolai, or "solvent individuals who default on loans" has been on the rise in recent years. Legal methods usually don't work with such people, he said.

The head of a lending agency in East China's Fujian Province surnamed Chen agreed, offering her own experience as an example.

"We tried to field a lawsuit against a debtor who owed us 1 million yuan in 2015, and the person did not show up in court even though he received the summons," said Chen, noting that although the agency won the case, the defendant refused to pay back the loan.

Following the case, "we applied for compulsory execution immediately after the period of performance specified by the legal document had ended and the court then froze his assets. But we still haven't gotten the money back," Chen told the Global Times on Tuesday.

In some extreme cases, debtors transfer their assets overseas to avoid court orders, a tactic that takes advantage of the loopholes in China's legal system, private lenders noted.

"Ironically, in Su's case, she also borrowed more than 20 million yuan from other private lenders and commercial banks such as the Shanghai Pudong Development Bank from 2014 to 2016, according to media reports. But she did not pay back any of the loans except the real estate company, which hired debt collectors," Chen said.

Chen admitted that her agency has sometimes retained debt collectors, as they are much more effective than the courts when dealing with laolai.

In the wake of the loan shark case in Shandong, the manager at the P2P platform said he was worried that creditors will experience a harder time being repaid.

Hao said that debt collectors need to be careful about how they proceed when seeking to collect loans. He noted that the difficulties in enforcing court rulings in civil cases have haunted China for a long time.

"The country should strengthen the legal protection of creditors who lent at a reasonable interest rate," he said. For example, the Chinese government can change the rules to impose criminal liability on laolai, he suggested.

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