Yesterday (21 Oct), the office of 51 Credit Card, a Hangzhou-based fintech company listed in Hong Kong, was raided  by the police (feature picture).

A listed company being raid sends further chills in the sector. The company’s share prices tanked as well.

And Hangzhou Police actually issued a statement on the evening saying that the raid was in response to the collection practices of its third party collection partners. This gave a bit of relief to the market.

We already explained why companies would go in to such lending activities, even though these might not be their core business model.

On the same day, several central authorities, including the Supreme Court and the Ministry of Public Security, issue a joint communique. The document clearly defines the effective interest as including all fees. The ceiling of such interest rate was previously defined as 36%.

It criminalises any individual or entity lending above such interest rate fore more than 10 times. A series of other activities are defined as criminal as well.

This, in effect, makes it impossible for any unlicensed online lending company to continue their operations. Of course, this depends on the actual enforcement of such regulations.

However, two things are certain:

  1. There is hardly any more room for argument – Chinese companies have been quite innovative in getting around regulations and rules. The new rules make it hard.
  2. In the short term, overdue rates for even legal platforms would shoot up. The reason is simple, many of the borrowers would have borrowed from multiple platforms (to pay back to multiple other platforms).

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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