Regulators crack down on illegal cash advances in Shanghai
By Wang Zhenghua (China Daily)Updated: 2006-12-21 13:52 Bank regulators are trying to clamp down on illegal cash advances made by some shops in Shanghai to credit card holders.
China Banking Regulatory Commission (CBRC) recently issued a circular to card-issuing banks urging them to exercise strong control on authorized retailers to prevent them from making cash advances to customers instead of selling goods.
Such illegal practice is increasingly widespread as more and more retailers are trying to profit by offering cash to customers in fake transactions. Customers benefit from the deals by avoiding higher bank charges, extending credit limits, and getting lower interest rates.
The shop making the advance usually charges a one-off handling fee of between 1.5 and 4 per cent on each transaction.
Recently, a growing number of cases have been found across the country of illegal agents claiming they can provide cash services.
These agents, having access to POS (points of sale) terminals, make fake purchase transactions for cardholders in need of cash.
Via such transactions, customers get a lower interest rate and a longer grace period on their credit card than from a legitimate cash advance. They pay a relatively small amount of money to agents.
If this practice continues, banks will suffer monetary losses and face huge credit risks if users are unable to pay back the "cash advance."
"The CBRC's Shanghai branch has issued warnings to all card-issuers and acquirer-banks, demanding them to enhance supervision on card issuing and credit risk management and accreditation of qualified businesses," the regulator said in a statement late last week.
"In particular ... lenders should strictly review the terms of absorbing businesses supporting transaction over credit cards, and strengthen supervision and management of them,
The credit card market in China is growing fast mainly because of increased spending. Experts are calling for an early release of the Bank Card Administrative Provisions, which might allow card users to withdraw full amounts of cash within a credit line that will help eradicate illegal cash withdrawal.
China Unionpay (CUP), the only nationwide electronic payment and interchange network operator, projected its credit card issuance next year will be 10 million, compared with three million this year.
China Merchants Bank (CMB), the country's sixth-largest lender, expects the circulation of its dual currency-denominated credit cards to reach 10 million at the end of the year, a jump of 100 per cent from December 2005.
The central bank will soon issue new credit card regulations which will stipulate more severe punishment for illegal cash withdrawal, extend the upper limits of credit, and allow foreign banks to issue credit cards, according to sources from the relevant authorities.
Xu Luode, chief of the Payment System Department of the People's Bank of China, said last month related parties have reached a consensus on a draft of the Bank Card Administrative Provisions, which will be submitted to the State Council for legislative approval.
(For more biz stories, please visit Industry Updates)