AFSA WORLD

Complying with new guidelines on internet lending, debt collection

The guidelines precede ultimate adoption of a national standard for Internet Finance Guidance on Post-loan Collection Risk Control of Online Consumer Lending, which is under development by the NIFA with the China Banking Association, China Association of Communications Enterprises and Internet Society of China – and approved by the National Financial Standardisation Technical Committee – but has not yet been released.

This article highlights compliance recommendations for financial institutions based on the issued guidelines.

Managing collection personnel

Guan Zhenming
Senior Partner
Joint-Win Partners

1. Establish specific hiring standards. Individuals with a history of violent crimes or serious negative credit records must not be employed as collection personnel.
2. Organise pre-employment training and assessments for collection personnel, covering topics such as basic financial knowledge, professional ethics and operational standards. Require them to sign a confidentiality agreement regarding personal information.
3. Dynamically monitor the behaviour of collection personnel. Address inappropriate actions promptly. Reassign those unsuitable for collection work and dismiss those involved in significant illegal actions, reporting them to industry self-regulatory organisations.
4. Conduct regular training and assessments for collection personnel at least once a year, covering collection operations and cybersecurity awareness to enhance their professional skills and ethical standards.
5. Develop reasonable performance evaluations and reward mechanisms, incorporating compliance, collection effectiveness, information security and complaint rates.
6. Prohibit collection personnel from charging additional fees or coercing debtors into using illegal means to repay debts.

Standardising collection

Carefully select collection targets. Collection efforts should be directed solely at debtors. Contacting other individuals is permissible only under specific conditions and must adhere to the above-mentioned guidelines.

Strict adherence to collection hours. Unless explicitly agreed otherwise, collection activities should be conducted between 8am and 10pm daily.

Maintain collection records. Financial institutions should record the entire collection process. When outsourcing to third-party collectors, they must require complete records and retain them for more than two years. Additionally, financial institutions should conduct at least one annual self-audit of their collection records, and also perform at least one regular and one random inspection of third-party collection records annually.

Disclose collection information. Financial institutions should publicly disclose the names and contact details of third-party collection agencies through official channels and update this information regularly. They must provide accurate and timely information to debtors on inquiry about co-operating third-party agencies.

Limit collection frequency. Typically, voice reminders should not exceed three times per day. Written reminders should have at least a seven-day interval. Phone call interactions should not exceed three times per day, and in-person interactions should not exceed once per day.

Emphasising signed agreements

1. The guidelines require financial institutions to prominently highlight key information related to collections in loan contracts or service agreements. This includes loan terms, interest rates, repayment arrangements, measures for overdue payments, default responsibilities and personal information handling.
   Such information should be marked clearly (e.g. bold, black, underlined) to ensure borrowers read it carefully. Financial institutions should adhere to responsible finance principles, operate in compliance, enhance financial consumer education and protection, and guide borrowers to make rational borrowing decisions and plan repayments reasonably.

1. Agree on collection frequency and timing with debtors. According to the guidelines, financial institutions may agree with debtors on the frequency and timing of collection activities. Generally, voice reminders should not exceed three times per day, phone call interactions should not exceed three times per day, in-person interactions should not exceed once per day, and collection activities should not occur between 10pm and 8am unless otherwise agreed with the debtor.
2. Sign written agreements with third-party collection agencies. The guidelines require financial institutions to sign a written agreement with third-party collection agencies before delegating collection tasks. This agreement must clearly define the responsibilities and rights of each party.
   This includes: consumer rights protection; the scope and duration of the delegation; collection operation requirements; personal information security controls; risk-sharing; permissions for subcontracting; conditions and transitional arrangements for modifying or terminating the agreement; standards for addressing breaches of consumer protection responsibilities; dispute resolution mechanisms; and liabilities for breach of contract.

Key takeaways

The guidelines address a growing number of payment disputes accompanying growing household debt. They bring more transparency and fairness to the debt collection process and take effect on issuance.

Involved institutions should thoroughly study them, implement the requirements, and ensure compliance in post-loan collection activities, preparing and paving the way for forthcoming enforcement of the Internet Finance Guidance on Post-loan Collection Risk Control of Online Consumer Lending.