Personal credit system update closes fake divorce loophole

2 min read
central bank china fintech personal credit system
The Shanghai headquarters of the People’s Bank of China, China’s central bank. (Image credit: TechNode/Eugene Tang)

China’s central bank has said it will launch the second iteration of its personal credit system on Jan. 20, closing loopholes in the earlier version which allowed users to whitewash credit records with fake divorces or account closures.

Why it matters: The revision improves upon some of the major flaws in the first version including long lag times and gaping loopholes, but poses little threat to online loan providers and their lending ecosystems, which remain far more convenient and user friendly.

Details: There were 2.1 billion queries into personal credit ratings and 97.72 million into corporate credit ratings from January to November 2019, according to a report from state-owned Beijing News.

  • Wang Xiaolei, deputy director of the Credit Reference Center (CRC) said that the system will collect data on personal credit information, public utilities payments, and public information including court-administered punishments.
  • The new system is speedier than the previous version which could take up to a month to process updates, providing opportunities for people to take advantage of the lags to apply for loans.
  • The new version of personal credit information expands coverage to include loans taken out by married couples. If a secondary borrower buys a house again following a divorce, preferential policies for first-time buyers no longer apply.
  • Loan paybacks from closed credit cards will be visible for five years rather than two, but this widening of data collection are a cause of concern for some analysts.
  • He Nanye, researcher at Suning Finance Research Institute told Beijing News that more is not better, and that the expansion of irrelevant credit information will waste social resources and weaken the accuracy of the credit system. For instance, casting a net too widely could flag legitimate small business owners who have accrued debt.

Context: China’s central bank is carrying out a balancing act between preventing risk and nurturing small enterprises. Both are central government priorities.

  • CRC is the world’s largest credit information agency and provides standardized credit files for every single person or company in China engaged in credit-related activities.
  • Online lenders have thrived in the gap created by the cumbersome central bank system, which deters users. As online lending has risen in popularity in recent years, the platforms have released their own credit ratings.
  • Credit ratings from online lenders diverge from the central bank’s credit system because these platforms prioritize attracting users and enticing them to spend on other platforms.
  • “Commercial credit ratings from lending apps like Ant Financial’s Huabei and Jiebei are not the same as the central bank’s,” Dong Tian, an employee at financial investment app Haomaijijin told TechNode. “Ultimately the customer is god. If you don’t pay back a loan on time, they won’t submit this to the central bank’s credit system unless you agree.”