Police in Hangzhou, the capital of Zhejiang province, announced at 11:14 pm on Monday via its official Weibo account that 51 Credit Card is being investigated for employing loan collection agencies that exhibited “violent behaviors” towards its debtors.Â
This happened mere hours after the police raided 51 Credit Card headquarters earlier that day. The Hong Kong-listed company suspended trading following a 35% dive in its stock price on Monday afternoon.
The Hangzhou police revealed that since the beginning of September it had received clues from its higher authorities about 51 Credit Card’s questionable practices, without going into specifics. The police informed the public via its Weibo account that it had also received many complaints about the company from users across China.
Police investigators observed that 51 Credit Card had entrusted third-party agencies to collect loans on behalf of the company, adding that these agencies claimed to be “government departments” and had threatened debtors who were unable to repay their loans on time. The police added that it suspected the company had committed criminal offenses.
51 Credit Card confirmed with the Stock Exchange of Hong Kong in a filing earlier this morning the police intervention, and added that the firm’s founder and CEO Sun Haitao and CFO Zhao Ke were also “assisting in the investigation at the request of the relevant government authorities.”
The company stated that the two men had not been detained. According to the filing, the firm “currently has not received any formal documents in relation to the reasons for investigation issued by the relevant government authorities and is not aware of the specific details behind the investigation.”
In a second filing with the Hong Kong bourse posted at 12: 23 pm today, 51 Credit Card confirmed the announcement from the Hangzhou police and denied “rumors spreading on the Internet” about the alleged leakage of personal data and illegal theft of personal data. It said that all personal data collection of the company has been conducted with legal user authorization, and that there has been no illegal theft of personal data.
The company, which is China’s largest online credit card management platform and runs a peer-to-peer (P2P) lending business, said it had applied to the stock exchange for the resumption of trading in its shares from 1:00 pm today. Its shares rose by around 20% ten minutes after the resumption.
Sun said on his personal Weibo feed this morning that this investigation was because of “imperfect management“. He apologized to those who were hurt during the “radical communication” employed by debt collectors. He also tried to pacify retail investors on its P2P platform called 51rp, saying that the company has sufficient cash and assets to protect its rights.
The company’s outstanding loans stood at RMB 10.7 billion (USD 1.5 billion), while RMB 9.7 billion was owed to retail investors. The company had RMB 3.4 billion in net assets and RMB 2.6 billion in cash at the end of June, according to Sun. The average tenure of such loans was 10.8 months during the first half of 2019, according to the company’s interim report.
P2P platforms in China are allowed to offer loans with annual interest rates no higher than 36% and target those who do not have access to low-cost funds from conventional financial institutions. However, those debtors often default on their loans, leaving them at the mercy of outsourced loan collecting companies.
Despite Chinese legal authorities’ prohibition of violence in loan collection, it does occur from time to time in practice.
