Inter-Credit Newsletter(2) - November, 2018

General Information 

"Credit" is getting more and more attention in China. With the improvement of the Internet financial credit system and laws relating to collection and personal bankruptcy, the division of labor in China's collection industry will be more refined, which means more professional and normative. 

Laws and Regulations 

Multiple relevant laws but no specialized law of collection

At present, the laws and regulations relating to debt collection mainly include: the Constitution, the Criminal Law, the General Principles of the Civil Law, the Property Law, the Tort Liability Law, and the Security Administration Punishment Law. 

The laws and regulations clearly protect the personal rights and property rights of citizens (natural persons). Anyone who violates relevant laws and regulations will bear civil liability, administrative liability and even criminal liability.

Indirect regulations issued by CBRC

The bank is the main entrusting party for outsourcing collection. As a licensed financial institution, bank needs to supervise their entrusted collection agencies in order to protect their own interests, prevent and control risks. To this end, the CBRC (China Banking Regulatory Commission) issued the following documents, which basically regulated the credit card debt collection.  

(1)The Measures for the Supervision and Administration of Credit Card Business of Commercial Banks 

The card-issuing bank shall establish a management system for credit card debt collection to regulate the collection strategy, authority, procedures and methods; it shall not collect debt from unrelated third-party persons, and shall not perform improper collection actions, such as violence, coercion, intimidation or abuse.

(2)Guidelines for Outsourcing Risk Management of Banking Financial Institutions 

Banking financial institutions should carefully implement outsourcing collection. The banking financial institutions that outsource debt collection shall establish corresponding business management systems, clearly identify the selection criteria, business training, legal liability and economic responsibilities of the outsourcing agencies.

If outsourcing collection performed by collection agencies damaged the legal rights of debtors or relevant persons due to the lack of proper management, banking financial institutions shall assume corresponding responsibility of outsourcing risk management.

Regulatory System 
The supervision of the collection industry includes institutional supervision and behavioral supervision, involving multiple government departments, such as the China Banking Regulatory Commission, the industrial and commercial sector, the public security department, and the telecommunications sector. Judging from the current situation, the future regulatory system may adopt a mode that multiple sectors supervise in coordination while institutional supervision and behavioral supervision are separated. 

Business Registration Management

Legal collection agencies can obtain the business license issued by the industrial and commercial registration department. However, the collection business is far from general recognition of the market, society and the public.

Supervision of PBC

The People's Bank of China has formulated the regulation of "Administrative Measures for the Registration of Credit Information Agencies”. The credit reporting company shall register at the provincial branch of the PBC and accept its supervision and management.

Development of the Credit System

China's social credit system is expanding to all aspects of daily life. If a person/company fails to comply with a court order, the people's court may place it on a national list of defaulters, which will impose great impacts on defaulters’ life.

Current Status
Led by the National Development and Reform Commission and the Supreme People's Court, 44 units including the PBC, the Central Organization Department, the Central Propaganda Department, the Central Organizing Office, the Central Civilization Office, and the Supreme People's Procuratorate jointly signed the "Memorandum of Cooperation on Joint Actions against Defaulters". The Memorandum proposed a total of 55 disciplinary measures, comprehensively restricting the defaulters from establishing financial institutions, engaging in civil and commercial activities, enjoying preferential policies, and holding important positions.

Below are few examples:
  • High-consumption will be prohibited, including the ban on taking planes and high-speed trains;
  • Restrictions on application for loans or credit cards;
  • The defaulters shall not hold the post of the legal representative, director, supervisor or senior manager of any companies;
  • Children of defaulters are unable to attend expensive private schools;
  • If the situation is serious, the public security organs will also restrict defaulters from leaving the country.

Outlook of the Credit System
In 1999, China put forward the concept of social credit system as a fundamental solution to readjusting and standardizing the order of market economy. In June 2014, the first national top-level design document was issued. - "Social Credit System Planning Outline (2014-2020)"
The main goal of the establishment of the social credit system by 2020 is:
  • The basic laws, regulations and standards of social credit will be preliminarily established.
  • The credit information system covering the whole society based on the sharing of credit information resources will be basically completed, supervision system and the credit service market system will be basically sound.
  • The mechanism to encourage integrity and punish dishonesty is fully functional.
  • Significant progress has been made in the construction of governmental, commercial and social integrity. Judicial credibility and social satisfaction have increased significantly.
  • The sense of integrity in the whole society has generally increased. The credit environment, economic and social order have improved significantly.

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