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November 5, 2009

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Two detained in credit-card scheme

TWO men have been detained by Huangpu District police for using a bank-system loophole to swindle 14,000 yuan (US$2,050) through a form of credit-card fraud.

The suspects, identified as Chen Yun and Lu Weijie, avoided an overdraft penalty by using an agent who arranged to clear their debt for them.

But the scheme fell apart when the suspects failed to repay the agent, police said yesterday.

"The business trick has already benefited thousands of cardholders in avoiding overdraft fees," said a police officer surnamed Qin.

"But the practice is based on a loophole of the credit card application system and does pose hidden risks."

Police said the practice relies on a chain involving a cardholder, a money lender and an agent.

The agents, most of them bank-industry insiders, usually register a company and own a point-of-sales credit card machine.

Cardholders who overspend but can't pay off before the due date turn to agents to meet the card-issuer's deadline. They want to avoid high interest plus an overdraft penalty.

Agents start their business by looking for a money lender who will pay for the overdraft.

When the debt is cleared and cardholders' overdraft quota restored, the agent swipes the card at his POS machine as if there has been a sale, to get the money back to the lender.

"The cardholders may find the agent via the Internet when they overdraft," Qin said.

The agents and lenders cash in by charging a commission of 0.2 percent to 0.3 percent, Qin said. That is much lower than interest rate and overdraft fees that bank would charge.

In the current case, Chen and Lu - an overdrawn card holder and his friend, respectively - attempted to short-cut the process when they tried to renew their card with an overdraft of 14,000 yuan, police said.

As soon as the lender transferred the money to Chen's account, he reported the loss of his credit card to the bank. That prevented the agent from swiping the card on his POS machine.

"The overdraft was paid," said Qin. "The two suspects decided to divide up the money later."

The two were unemployed former bank salesmen, according to police.


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