Experts call for better protection in online finance

The protection of what is known as "financial consumers," i.e. those who purchase financial products, has started to draw the attention of Chinese lawmakers as well as financial experts in the wake of the latest international financial crisis, which saw ordinary people's investments vanish overnight.

Half a decade on, the issue is still bugging both consumers and financial institutions - China does have a "Consumer Protection Law." But the law, enacted in 1994, does not quite cope with the fact that online transactions – or online payments – accounts for a large part of China's total business volume.

"We have several laws that together more or less protect consumers, including online shoppers. But in most cases the laws only apply to physical, tangible products, and not financial products," said Ms. Zhu Hong, deputy chief of Financial Consumer Protection Bureau at the People's Bank of China (PBOC), China's central bank, in Beijing on Wednesday.

Consumers who demand compensation for bad-performing financial products are often told that they have been reminded of the "possible investment risks." Many believe that service providers may have abused the disclaimers that an ordinary consumer would rarely bother to read through, she said.

Her remark comes at a time when various financial products are nibbling away banks' market share with much higher expected earnings. Yu'ebao, a low-entry Internet investment product, has been draining off bank deposit pools with a higher, floating, interest rate.

Yu'ebao combines deposit, payment, and investment functions, a feature that no traditional fund management companies yet provide. Also, it allows investors to wake up and actually see how much interest money their deposit has generated overnight.

Other prominent online financing tools include Bitcoins and Renrendai (Loans for All).

"These grass-root online financing tools give consumers a larger and clearer range of products to choose from, making them feel that they eventually control their investment," said Zhu.

But the PBC senior official warned that the protection of consumers also lies in "teaching them to honor their individual credit, personal trust and honesty." She mentioned that fresh colleague graduates accounted for a rising proportion of those involved in recent financing fraud cases – including malicious credit card overdrafts and online financing fraudulence.

"They are among the first to experience novel things, but their sense of personal credit, and their ability in risk management failed to develop accordingly," said Zhu, who stressed that "better education in this regard is also necessary for consumers' protection."

Yang Dong, a law expert at Renmin University of China, called for financial reform to protect financial consumers, starting with legislation. He said that in China, "an insufficient dispute complaint and settlement mechanism, and the complicated nature of regular financial disputes, including evidence collection put consumers in a vulnerable position."

In his latest Advisory Report on China's Financial Consumers Protection, Yang, as well as calling for strengthened supervision, suggested setting up a diversified mediation system to allow compensation for victim in financial purchases.