The China Banking Regulatory Commission Shanghai Bureau will investigate the city's credit card industry in an attempt to curb growing card fraud.

The investigation will focus on card selling and credit verification. Based on the results, the bureau will draft new rules, in collaboration with other government departments, to regulate the industry.

According to an update from the Shanghai People's High Court, more than half of the bank-related lawsuits local courts handle involve credit cards. Most of them are credit fraud, which is rapidly on the increase, said Xiao Bo, a judge from the Shanghai Pudong New Area District People's Court.

In 2003 and 2004, the court tried four and nine cases of credit card fraud respectively. The figure has soared to 44 this year in the first seven months alone.

Domestic banks

Starting from late 2003, several domestic banks, including China Construction Bank and China Merchants Bank, launched intensive marketing activities promoting credit cards. To attract customers, some banks lowered the criteria or simplified the procedures for assessment.

Many customers now find it easier to obtain a credit card. By simply filling in a form with personal information, a successful applicant is granted a card with at least 5,000 yuan (US$671) credit limit.

Consequently credit card fraud boomed. Some cardholders withdraw extravagantly without any intention of paying off the bill, while others are totally unable to pay.

To win over more customers, some banks allow their branches to issue cards, or even outsource their sales business, thus making it possible for a client to obtain more than one credit card by applying to a number of different outlets.

A gang of four people obtained 39 credit cards and ran up bills of more than 410,000 yuan (US$50,555). They simply posted recruitment ads in newspapers and used the personal data they got from job applications to get cards. They were recently sentenced to prison terms between six and 12.5 years.

Guidelines

In March last year and April this year, the China Banking Regulatory Commission released notices and guidelines, urging banks to tighten the outsourcing of card sales and pay more attention to credit card security.

The guidelines narrow down the scope of the outsourcing business, leaving credit evaluation and card issuing to banks.

However, more efforts are needed to improve the efficiency of evaluation, according to Judge Xiao.

Shanghai set up the country's first consumer database system for credit evaluation as early as 1993. It now includes information about more than 2.6 million people, which is about half of Shanghai's consumer population.

But the database is far from enough to provide complete credit information for every individual.

"Many banks are reluctant to open their customer pool to the database, fearing that it will affect their own profits," said Xiao.

"Therefore, it is difficult for one bank to review an applicant's relationship with other banks."

Because of this, many banks grant some customers credit they are not qualified for.

(China Daily August 29, 2005)