China UnionPay, which is claimed to be the only domestic credit card organization in China, has been accused of facilitating cash advances with lower fees and interest free periods.

It is learned that under the rules of China UnionPay, merchants need to return only 0.5% to 2% of the total amount of a cardholders expenditure to the bank issuing the card and to China UnionPay, and the rest of the revenue should go to the merchant's account. It is said that it is this rule of China UnionPay that has resulted in an increase of intermediate agencies helping people with the illegal cash advances.

In addition to illegal cash advances, the agencies are said to also take advantage of China UnionPay's rule to help card holders pay back their loans with a credit card, which has resulted in a lot of bad debt for the banks.

Local experts are quoted as saying that it is the unstructured competition among banks and the improper positioning of financial institutions such as China UnionPay that has led to these illegal activities. And they stress that China UnionPay should adjust its position and play the role of a service provider for the banks instead of competing with them.

Illegal cash advances refers to a credit card holder withdrawing cash by using their card on a point of sale machine; ostensibly to make a purchase from an intermediate agency which then charges them a lower service fee and enables them to withdraw more money than is permitted at an ATM or at a bank and to enjoy other benefits like a 56-day interest free period.

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