Illegal cash advances on credit cards cost banks billions  

信用卡非法套现形成黑色产业链 坏账一年增七成

(ECNS) – Cash advances acquired through illegal POS machines and pre-authorized payments are costing banks billions of dollars each year, the Economic Information Daily reported on Monday.

Through fictitious transactions, false prices and fake refunds, owners of POS machines help clients cash out hundreds of thousands or even millions from their credit cards with fees of 1 to 3 percent.

By the end of 2013, credit debt at least six months overdue surged by 70 percent to 25.2 billion yuan ($4 billion).

An illegal industry chain has developed around cash advances, involving bank employees, third party payment firms and intermediary agencies.

Banks collaborate with third-party payment firms to sell POS machines. Theoretically, there's a procedure to apply for the machines, but some banks and institutions simplify the procedures to earn more profits, which gives illegal companies leeway to fake information and pass the application process.

Some people use pre-authorized payments to cash out their credit cards. Pre-authorized payments allow card holders to make payments of 115 percent of the original transaction amounts, creating a margin from which people can profit.

Other illegal cash advance practices include credit-card kiting -- using one card to pay loans on another card. In China, 7.38 percent of consumers have more than six credit cards, and 1.35 percent have more than 10.

Scant supervision of POS machines and financing difficulties for small businesses have contributed to the rise of this illegal business.

Although third-party payment firms are under the supervision of China UnionPay, the selling and use of POS machines is not overseen by any department.

In addition, banks usually have prolonged procedures to approve loans for small and micro enterprises that are short on cash. As a result, some firms turn to credit cards for quick money.

Experts suggest that commercial banks should enhance monitoring of credit card transactions. The issue and use of POS machines should also be strictly supervised.

By Qian Ruisha