Credit card penalties draw criticism

An angry letter from a credit cardholder in Shandong Province addressed to China's banking regulator added to the growing public debate about the fees charged by local credit card issuers when it surfaced Tuesday on sina.com, a leading Chinese Internet portal.

Wang Xinliang, the letter's author and a lawyer by profession, accused domestic banks of taking advantage of local cardholders' lack of knowledge regarding how late repayment charges and other penalties are calculated to collect excessive fees.

The letter arrived less than two weeks after local media in Xi'an, Shaanxi Province, brought the issue of excessive bank fees back to the public's attention with reports on a credit cardholder in the city who had been saddled with 440,000 yuan ($70,376.37) in credit card fees after overdrawing 110,000 yuan over a period of five years.

While many accuse banks of expanding credit card penalties to enlarge their profits, such a strategy will do little to curb irresponsible spending behaviors in the country's growing consumer class, experts told the Global Times.

In a bid to gain ground in the country's burgeoning credit card market, Chinese commercial lenders have been issuing cards to as many people as possible, even people with limited repayment abilities or immature buying habits, such as high school students, Yu Fenghui, a senior officer from Agricultural Bank of China, told the Global Times.

Credit card payments overdue for more than six months amounted to 13.27 billion yuan by the end of the second quarter, up 1.23 billion yuan from the end of March, according to data from the People's Bank of China.

"The inflow of low-credit cardholders has only bred greater default risks, and compelled banks to drive up the related penalties," Yu said.

At the same time, as China still lacks detailed regulations to limit the service fees and penalties banks can charge their customers, commercial lenders have little incentive to amend the current fine structure, which is based on international standards and approved by the country's financial authorities, Yu explained.

However, the credit card penalty system as it exists now will only trap more and more cardholders in a vicious debt cycle as the credit industry grows, and intensify the risks facing China's financial system, Wu Hong, vice president of the China Banking Law Society, told the Global Times.

Wu suggested financial authorities should work to improve the country's nascent personal credit rating system to identify high-risk consumers.

"A sound credit rating system will address default problems before they emerge; unlike the current fine system, which only works retroactively," explained Wu.