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Chinese loan app trap? All you need to know

The Chinese loan app trap is a scheme that involves offering small loans at exorbitant interest rates and then harassing and blackmailing the borrowers

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Discover the dangers of Chinese loan apps and how they can trap unsuspecting borrowers in a cycle of debt.

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If you are looking for a quick and easy way to get a loan online, you might be tempted by the numerous apps that promise instant cash with minimal documentation. However, you should be very careful before you download any of these apps, as many of them are part of a massive scam that is run by Chinese cybercriminals who exploit the financial vulnerability of Indians.

What is the Chinese loan app trap?

The Chinese loan app trap is a scheme that involves offering small loans at exorbitant interest rates and then harassing, blackmailing, and shaming the borrowers who fail to repay on time. The apps typically ask for personal information, bank details, an Aadhaar card, PAN card, contacts, and access to a phone gallery and camera.

Once the loan is approved, the borrowers have to repay it within a very short period, usually 7 to 15 days, with an interest rate of 30% to 40%. If they default or delay, they are subjected to abusive calls, messages, and threats from fake legal firms and recovery agents. Some of them are even asked to send nude pictures or videos as collateral, which are then used to extort more money or leak online. The borrowers are also humiliated by sending messages to their contacts, exposing their debt and demanding repayment.

Also read: WhatsApp Pink: Why is it dangerous?

Understanding the Chinese Loan App Trap:

The Chinese loan app trap refers to a phenomenon where individuals unknowingly fall into a cycle of debt and face severe consequences due to the exploitative practices of certain loan apps originating from China. These apps often target users in developing countries where access to traditional banking services may be limited, promising quick and easy loans with minimal documentation. However, the reality is far from what it seems.

Predatory Lending Practices:

One of the primary dangers of these loan apps lies in their predatory lending practices. They often offer loans with high-interest rates and hidden fees, which can quickly lead borrowers into a debt spiral. Moreover, they employ aggressive and unethical debt collection tactics, including harassment and public shaming, to force borrowers into repayment.

Lack of Transparency and Regulation:

Chinese loan apps often operate in regulatory grey areas, making it challenging to hold them accountable for their actions. They typically evade local regulations and licensing requirements, further jeopardizing the rights and safety of borrowers. The lack of transparency surrounding their ownership, lending practices, and data handling raises serious concerns.

Data Privacy and Security Risks:

Many Chinese loan apps require users to provide extensive personal information and access to their smartphone data during the application process. This creates significant privacy and security risks, as these apps may misuse or sell personal data without the user’s knowledge or consent. This could result in identity theft, financial fraud, and other severe consequences.

Psychological and Emotional Impact:

The aggressive debt collection tactics employed by these loan apps can have a profound psychological and emotional impact on borrowers. Many individuals find themselves trapped in a cycle of anxiety, stress, and depression due to mounting debt and constant harassment.

How widespread is the Chinese loan app trap?

The Chinese loan app trap has affected thousands of Indians across the country, especially during the COVID-19 pandemic when many people lost their jobs or income sources and were in dire need of money. According to a report by News18, the Enforcement Directorate (ED) has found that over Rs 3,000 crore has been laundered to China through some private and international banks by these apps.

The ED has registered six cases under the Prevention of Money Laundering Act (PMLA) and two under the Foreign Exchange Management Act (FEMA) based on 25 FIRs lodged in Bengaluru. The ED has also issued summons to Chinese mobile manufacturer Xiaomi Technology India Private Limited and three international banks operating in India, which have allegedly sent Rs 5,500 crore as “royalty” to China, violating rules. The ED has also found that cryptocurrency has been extensively used in the case to conceal the origin of payments.

Who are behind the Chinese loan app trap?

The investigation by ED and other agencies has revealed that most of the lending apps are linked to large Chinese companies that operate through dummy directors and shell companies in India. One such company is Hui Yung Financial Holdings, based in Shanghai, which owns several subsidiaries in India and China, such as Benefactum Alliance (India), Jupiter Trading, and Hebron Technology. The parent companies of most of the lending apps have at least one Chinese national in the board of directors. Many of these companies have been registered only in the last two years.

Protecting Yourself from the Chinese Loan App Trap:

To safeguard yourself from falling victim to the Chinese loan app trap, consider the following steps:

Research and Due Diligence:

Before downloading any loan app, thoroughly research its background, reputation, and user reviews. Look for red flags such as excessive permissions, negative feedback, or lack of credible information.

Read the Fine Print:

Carefully review the terms and conditions, interest rates, and repayment schedules provided by the loan app. If anything seems unclear or unfair, it is best to avoid proceeding with the loan.

Use Licensed and Regulated Platforms:

Choose loan apps that are licensed and regulated by relevant financial authorities. This helps ensure adherence to established guidelines and increases the chances of fair lending practices.

Protect Your Personal Data:

Be cautious while sharing personal information and granting access to your smartphone data. Verify the app’s privacy policy and permissions requested, and consider using a virtual private network (VPN) for added security.

Seek Alternatives:

Explore alternative lending options, such as microfinance institutions or reputable financial institutions, that provide loans with reasonable interest rates and transparent terms.

Financial Literacy and Education:

Enhance your financial literacy to make informed decisions regarding loans and borrowing. Understand the implications of interest rates, repayment obligations, and the risks associated with borrowing from unfamiliar sources.

What are the legal actions against the Chinese loan app trap?

The Indian authorities have taken several steps to crack down on the Chinese loan app trap and protect consumers from falling prey to it. The Reserve Bank of India (RBI) has issued a warning against unauthorised digital lending platforms and advised people to verify the credentials of the lenders before availing any loans online. The RBI has also set up a working group to study digital lending activities and suggest regulatory measures. The Ministry of Electronics and Information Technology (MeitY) has banned over 200 Chinese loan apps from Google Play Store and Apple App Store after receiving complaints from various sources.

The Cyber Crime Police in various states have also registered cases against these apps and arrested several people involved in the scam. The victims of these apps can also file complaints with the National Consumer Helpline or approach their local police stations for assistance. The Chinese loan app trap is a serious threat to the financial security and dignity of Indians. By being vigilant and informed, you can protect yourself and your loved ones from this scam and save yourself from a lot of trouble and misery.

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