We’re out of money! Scamsters con the unwary
Print Edition
Too good to be true. Yang Juzhen learned the wisdom of that old saying the hard way. She lost 1.3 million yuan (US$210,000) of her savings in a fraudulent peer-to-peer lending program.
Yang, who is in her 60s, is plenty angry about it.
“I thought I was buying an insurance product because I signed the contract in a formal office of New China Life Insurance Co," Yang told Shanghai Daily. “The sales person promised me a yearly return of 12 percent, higher than bank interest, so I thought it was reasonable.”
Peer-to-peer lending has become very popular in China. Its online platforms connect individuals with spare cash to individuals who need some money. The format bypasses traditional lending institutions like banks and typically offers high rates of return. Most of the loans are unsecured.
The sector is booming in China. Last year, peer-to-peer platforms raised 252.8 billion yuan, up 139 percent from 2013, according to Online Lending House, a web portal that tracks the sector.
Yang didn’t know anything about peer-to-peer lending. She invested 100,000 yuan in what she thought was an insurance product in July 2013 and was initially pleased with the outcome.
“I received interest every month, and the sales department treated us investors to dinners and travel,” Yang said. “I never had any inkling of risk because we were so close to each other.”
Later, she injected 1.2 million yuan more into the program, using all the savings earmarked for her son to buy a new flat. She also convinced her sisters to invest their money.
Imagine her shock when she learned that the so-called “insurance product” turned out to be a peer-to-peer product sold by a shadowy group calling itself Paradise (Shanghai) Management Consulting Center and that the chief executive of the company had skipped town!
Yang was the victim of a giant fraud that has been under investigation since last July. No investor money has been recovered.
Yang blames the sales department of New China Life Insurance for her woes. But the insurer said in a website statement that the fraud was the result of individuals acting outside company policy. New China Life has never launched such products, it said.
Yang is not persuaded by the company’s denial of complicity.
“How can they act as the front for a fraudulent company and cheat us?” she asked, her voice rising in anger.
The China Insurance Regulatory Commission issued a public notice on April 1, warning the public about the rising incidence of such scams.
The commission said some peer-to-peer lending platforms utilize the cover of insurance sales to raise funds and convince customers into surrendering their insurance policies to buy peer-to-peer products that promise up to a 20 percent return.
The online platforms are considered part of China’s “shadow banking” sector, a largely unrelated realm that entices investors with offers of high interest rates and then turns around and loans the money out at even higher rates. A rising number of peer-to-peer schemes have gone belly-up, taking investor money with them.
Around 275 peer-to-peer platforms in China were forced to close last year because of fraud problems or cash flow difficulties, according to Online Lending House. In the first three months of this year, 183 have folded.
One of them was 4-year-old, Shanghai-based platform Baiyin Wealth Co, which operated peer-to-peer platform Redaiwang.com.
The company abruptly ceased business in February, leaving investors 226 million yuan poorer.
“I put a million yuan, my father’s savings, into a three-month program,” Zhang Xiqin told Shanghai Daily. “I thought there was no risk because the company claimed to use a third-party company as a guarantor, but I was wrong.”
Zhang said regulators need to intervene to protect people’s investments.
“The China Banking Regulatory Commission is supposed to oversee the finance sector,” Zhang said. “Without some regulation, how can investors distinguish between good and bad?”
Public outrage is expected to cast considerable scrutiny on peer-to-peer lending. Experts said it could be a can of worms once regulators start investigating the industry more closely.
“We see a rising risk of fraud problems in the peer-to-peer industry this year,” Ma Jun, chief research officer at Shanghai Ying Can Investment Management Consulting Co, told Shanghai Daily at an Internet finance education forum held in March. “More funds were probably enticed into the sector after the Spring Festival by charlatans as tighter regulation looms.”
Indeed, in March, the trading volume of peer-to-peer lenders jumped 47 percent to a monthly record of 49.3 billion yuan.
New regulations are expected by the end of June. Smaller platforms and those with shady operations are likely to be shuttered, Ma said.
Peer-to-peer platform Sanrendai.com announced its closure on April 2, while Mintaidai.com said last month that it would stop releasing new products and would enter into financial settlements.
“The number of fraudulent platforms will peak in 2015,” Ma predicted. “Given that, investors should be very wary about investing in anything that promises high returns.”
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