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April 7, 2012

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POS credit card scam brings big profits, then 11 years in prison

A young man who cashed more than 173 million yuan (US$27.4 million) from credit cards using POS (point of sale) machines and earned commissions from card holders was sentenced to 11 years in prison, the Hongkou District People's Court said yesterday.

Lu Xiangrong, 26, was also fined 1.5 million yuan for operating an illegal business, the court ruled.

Prosecutors said Lu registered a bogus company and began to offer the short-term and interest-free loans in an apartment on Siping Road in January last year. To attract more clients, Lu posted small advertisements and hired bank employees to introduce his services, prosecutors said.

Lu said clients only needed to bring and swipe their credit cards on the POS machines. Once the fake deals were done, an equivalent amount of money would be instantly cashed out from the credit cards and transferred into Lu's bank account.

While card holders were happy to get money without paying interest to a bank, Lu benefited by getting transaction commission fees of 0.3 percent, prosecutors said.

From March 2 to August 9 last year, the total amount that Lu had drawn for his clients totaled more than 173 million yuan, the court heard.

Lu said the four POS machines he used in the scheme were issued by Bank of China, China Everbright Bank and Huaxia Bank and were all purchased online.

The case was just the latest case of its kind. Last year, the district court tried 13 people in seven POS-cashing cases, each involving millions of yuan.

In one case, a mother and her son were jailed for 5 1/2 years and two years with two-year probation respectively for cashing more than 16 million yuan for credit card holders.

The pair registered a car sales company and applied for four POS machines from the bank. They not only charged 1.2 to 1.5 percent commission fees of each transaction but also lent one machine to other people for 2,000 to 2,500 yuan per month.

Local police tracked their illegal business after abnormal transactions in their bank accounts, the court said.

An investigation by Shanghai Daily found a POS-cashing scheme required quite low thresholds - a valid POS machine and enough clients - but the profits it produced were considerable. Portable POS machines were priced at 500 yuan to 3,500 yuan for different brands and banks on, China's biggest e-commerce platform.

Credit card holders who choose to pay one-off commissions can avoid paying recurring bank interest charges through fake purchase transactions, while the convicts receive good money. But the scheme could result in large credit card overdrafts and damage banking services, said prosecutors.


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