Shuffling the cards badly

It became a nightmare for Shanghai man Zhou Guang (not his real name) when he and his wife suddenly began receiving phone calls from banks demanding that they get their son to repay the thousands of yuan that he owed on credit cards. They learned that he had acquired 12 credit cards from various banks and he owed money on all of them.

According to the Shanghai Morning Post, Zhou's son, a 30-year-old airline ticket office clerk, began applying for credit cards in 2006. Nine banks provided him with 12 cards and access to 130,000 yuan ($20,781) in credit. But he had a gambling habit and an annual income of just 20,000 yuan.

His parents had no idea that their son was addicted to illegal slot machines or that he owed so much money until the banks began phoning them. By that stage their son had missed making any repayments on the cards for several months.

"I can't understand why the banks gave him 130,000 yuan in credit at the beginning since they knew my son only earned 2,000 yuan a month," Zhou said.

On the blacklist

Zhou spent all his savings - over 100,000 yuan - to help his son pay off the debts. Then he phoned the banks individually asking them to put his son's name on the credit blacklist to ensure that he would never be given a credit card again.

But just one month after Zhou had paid off the debts, the son began applying for more credit cards. Within four months he had been given another 13 credit cards from the same nine banks. It was then Zhou discovered his son owed the banks another 100,000 yuan plus interest.

The discovery of the new debts shook the couple to the core. When his wife insisted that they should pay off their son's debts, Zhou divorced her. The mother sold their only apartment downtown and used the money to pay some of her son's debts and then bought another apartment in an outer suburb, where she and her son now live.

Zhou's wife, surnamed Ni, told the Global Times that she had spent the entire summer running around the banks negotiating how she could pay off the debt. "We will pay off the principle but we are hoping that the banks will reduce the interest rate demands, which we really cannot afford. Some banks have agreed. Some banks have applied to the courts to order a full repayment. If we can't pay them, my son will probably face imprisonment."　

In China, credit card users who have not paid money owing to the bank for more than three months can be taken to court. The court will summons the person in the fifth month and the central bank will be notified.

The defendant can be charged with credit card fraud and could be sentenced to up to five years in jail. If huge amounts of money are involved or there are other serious circumstances, a defendant could incur a life sentence.

Professor Gu Jun from Shanghai University is a sociologist and believes that while people like Zhou's son should take responsibility for actions which had brought a huge economic burden to his family, the banks should also be blamed for their part.

"I just don't get it. Why did the banks allow my son to have so many credit cards a second time when they already knew he couldn't pay his debts back? Are they deliberately intending to hurt him?" Zhou asked.

When the father asked the banks these questions they told him that they thought that because his son was employed by an airline company and had a stable income, he qualified for the credit cards based on the information he supplied. Besides, since he had paid off all his previous card debts, this proved he had the ability to repay. "The banks said they had no reason not to give him cards," Zhou said.

Ignorance is bliss

But a senior bank employee working in the credit card section of China Construction Bank, who asked not to be named, told the Global Times that banks could easily discover an applicant's credit history but often ignored this.

"Banks usually have a strict assessment procedure, which includes checks on the credit history of every applicant. The procedure includes checking the applicant's income, savings and other financial details," the employee said.　　

She said every bank authorized to issue credit cards had access to a database in the People's Bank of China, China's central bank, which contained information about anyone who has applied for a credit card at any time. Any applicants with bad credit records are listed here.

"Technically, there are no obstacles to banks finding out if applicants have bad credit records. The only reason that banks approved more credit cards for Zhou's son was that they chose to ignore the central bank's records," said the employee at the China Construction Bank.

"Banks have different assessment procedures. Some banks would suspend card applications for problematic customers like Zhou's son based on their own internal evaluation procedures. But sometimes applicants with obviously bad credit records can still be approved for cards," she added.

Moreover, she explained, one important reason why banks would approve someone like Zhou's son for credit cards was because the card business had become one of their most profitable services.

Credit cards are one of the most highly promoted banking services now available. "Our headquarters sets an annual target for the number of credit cards to be issued and this is sent to all the branches. Sometimes we have to try all sorts of ways to meet these quotas," the employee explained.

Trying the system

Posing as a prospective client, the Global Times asked several banks about applying for credit cards. An employee of the customer service section with China Merchants Bank said applicants had to provide their ID card numbers and then a bank staff member would visit the applicant's work to fill in the forms required. Applicants had to provide detailed information about their personal financial status like work contracts and pay slips.

The bank will review all the information provided and approve or decline the application within 15 days.

However, there are informal ways of applying for credit cards. At the entrance of a Wal-Mart supermarket in Xuhui district recently, salesmen were trying to persuade passers-by to apply for Bank of Communications credit cards.

"If you use our credit cards, you can enjoy many benefits shopping and it is very easy to fill in this simple form," one salesman told the Global Times.

The salesman promised that everyone who filled in an application form would get a gift but the applicants were warned not to say anything about the gift offer if the bank called them.

The credit card regulations published by the China Banking Regulatory Commission in January 2011 make it clear that offering gifts for applicants is forbidden. Gifts can only be offered after cards have been activated.

The regulations say that applications for credit cards should include names, ID numbers, the names and addresses of workplaces and homes. Banks are specifically warned to treat anyone who had applied for several credit cards or had a bad credit record with special caution.

Some credit card sellers are now adopting the latest technology to push their sales, according to the Shanghai Morning Post. A popular cellphone software called Micro Letter, which can locate people using the same software nearby so that users can talk and meet if they want, has been used by credit card sellers to offer application forms.　　　

Nearly 25 percent of all the financial disputes and complaints in the city last year were related to credit cards, according to the Shanghai Branch of the China Banking Regulatory Commission.

Figures from the central bank show that China had issued more than 300 million credit cards by the end of June, a 17 percent year-on-year growth.

By June, the total spent with credit cards in China increased to 861 billion yuan, a 47 percent year-on-year increase. The bad debts for credit cards were worth 13.3 billion yuan, an increase of 10.2 percent over the previous year.　　

Supervision lacking

Despite the burgeoning number of credit cards, experts say that management and supervision of this service is lacking.

Professor Xi Jinyang, of the Finance Department at the Shanghai University of Finance and Economics, told the Global Times that the country urgently needed to have more detailed regulations for credit card management, especially for issuing cards.

"Currently the Chinese laws and banking industry regulations only say that banks are qualified to issue credit cards but have little to say about how the cards should be issued. It's a blind spot in China's credit card regulations. In reality it's all decided by the banks themselves," Xi said.

The professor suggested that the banks which issued a credit card first should offer a comprehensive credit assessment if their credit card holders wanted to apply for cards from other banks. And this assessment should be a compulsory section for the other banks when they consider people's applications for second or extra cards.　

At present each bank assesses applications in their own way rather than using a uniform method that could be monitored by authorities.

Xi said that in fact Shanghai's banking administration authority had already warned in 2008 about the dangers of people obtaining several credit cards from different banks.

"But in practice, many banks just want to issue enough credit cards to ensure they have a market share and ignore the potential risks for the banks and the customers."