Beware of online money traps – they can be fatal

Phillip Chao
Tighter regulations on online loans might prevent further abuse and tragedies. Financial institutions should also strive to meet the growing demand of small borrowers.
Phillip Chao

Online loans have become increasingly common in China. Most online platforms were licensed agencies that brought convenience to the public and earned income only from the interest.

But cyber space has also provided a breeding ground for illegal activities.

Some unscrupulous people, disguised as online lending agencies, set up traps to extort as much as possible from the victims. By employing specific strategies, they are able to magically “transform” a small loan to millions of yuan of debt. As the People’s Daily put it in a recent report, these loans are no longer merely usurious. They are criminal.

In one case reported recently in the People’s Daily, a resident in Hangzhou, Zhejiang Province, borrowed 30,000 yuan (US$4,500) from a local lender for business use. Astonishingly, that had grown to eight million yuan in a single year. After months of harassment by the agency, she was forced to sell her house and belongings to repay her debt. That didn’t work either: The “debt” was simply impossible to repay.

Another case saw the death of a young woman, who worked for local government in Guizhou Province. As reported by, the nightmare started when she borrowed 50,000 yuan from an online agency. Within six months, that loan crushed her — on an average day she could get 400 to 500 phone calls, in addition to threatening messages, from creditors.

After she took her own life, her family found out she still owed four different online loan platforms over 150,000 yuan despite the 80,0000 yuan they had given her, which she used to try to repay her debt.

Such a trap normally consists of several steps.

The first step is for the agencies to set up the bait by offering loan.

Most borrowers come in for a small amount of money, and the sum would shrink further by the time it reaches them: Agencies typically subtract some kinds of additional “service fees.”

After the client is on the hook, the next step is to make a contract. The agencies will leave blanks in the contract and make it really difficult to understand. This “trick” makes it possible for the agencies to add new terms afterwards as the victims often fail to read the contract closely. Once the money is lent, everything is done to prevent the borrowers from repaying the loans so that as much money as possible can be extorted on the excuse of successive defaults.


At this moment, the agencies might introduce other “small-loan companies” to the victim. These lenders would then conspire to get the most from the victim. Before long the victim falls into a vicious circle of borrowing-default-borrowing more. When the victim fails to pay, the lenders would use every possible method to intimidate — threats, harassment, insults, or even illegal detention.

In a case last April, a female college student in Xiamen, Fujian Province, took her own life after she could no longer deal with her debts. Investigation discovered that she had borrowed more than 570,000 yuan from a dozen lenders.

As she was unable to repay all the debts in time, the agency threatened to publish naked pictures of her.

Governments at all levels are taking effective measures to crack down on this type of crime.

According to a report by China National Radio, since this year, Hangzhou police alone have cracked down on 46 gangs and detained 497 people involved in illegal loans and extortion.

Tighter regulations and supervision on online loans might prevent further abuse and tragedies.

Banks and other financial institutions should also strive to meet the growing demand of small borrowers and design products that are more student-friendly and take less time to process.

The following tips might also help.

• Balance your spending and income and refrain from unnecessary purchases;

• If you borrow online, check the company’s credentials and license;

• Don’t be lured by “discounts” and check all the terms and conditions; and,

• If you think you are being scammed, keep all evidence and report to the police at once.

The author is an intern with Shanghai Daily.

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