Shanghai-based Meili Auto, which focuses on helping individuals obtain used car loans from traditional financial institutions, filed with the US Securities and Exchange Commission for an initial public offering (IPO) on Wednesday.

The company said the proposed maximum aggregate offering price would be USD 100 million, adding that this is estimated solely for the purpose of determining the registration fee amount. The final pricing and the number of shares to be offered have not been determined.

Meili Auto, which was founded in 2014 and counts JD Digits, the fintech arm of JD.com, among its investors, said the new funds will be used for the expansion of loan facilitation services, including satisfying related working capital needs. The funds will also be channeled to research and development on information technology and risk management. In addition, the fresh cash will be used for general corporate purposes.

The company said in its prospectus that it had facilitated a total of 206,116 used car financing transactions in 2018, which ranked it among the top three used car financing solution providers in China, according to research by Frost & Sullivan cited in the prospectus.

Used car financing is a nascent and fast-growing market in China, Meili Auto said, adding that the used car financing market grew at a compound annualized growth rate of 81.3% from RMB 7.7 billion (USD 1.09 billion) in 2013 to RMB 150.2 billion in 2018, citing data from Frost & Sullivan.

However, traditional financial institutions cannot on their own serve those who want to get a loan to fund their used-car purchase plans. Such institutions lack the salesforce strength to cover China’s dispersed dealer network, industry knowhow, including the ability of assessing the value of used cars, and technological and risk management capabilities, Meili Auto said. The company added that it leveraged its offline salesforce, industry knowledge, and data-driven proprietary technology to enable borrowers to access car loans from financial institutions.

The company operates an offline salesforce with approximately 4,000 sales personnel covering approximately 75,000 dealers across more than 300 cities, accounting for 30 of all 31 provinces in the Chinese mainland, as of June 30, 2019.

In addition, the company stated that it has established risk assessment models for customers, used cars, as well as dealers.

“We are one of the first independent used car financing solution providers in China to have obtained direct access to PBOC [Chinese central bank]’s credit reference center and incorporate 43 external sources of personal information data, behavior data, social network data, and location data into our risk assessment models through data mining, knowledge graphs, and machine learning,” said Meili Auto in its prospectus.

The company said that in the first half of this year, it charged car buyers service fees ranging typically from RMB 2,887 (USD 410) to RMB 10,540, representing 4.9% to 11.4% of the loan principal while Meili Auto’s funding partners charged these car buyers an annualized interest rate of about 8.4%. This indicates that one used car buyer could pay as high as 19.5% more than the car value itself for resorting to Meili Auto’s financing aid.

The company made RMB 984.4 million (USD 143.4 million) in total revenue in the first six months in 2019, representing an increase of 38.7% year-on-year and booked RMB 232 million in net income during the same period, up by 273% year-on-year.

However, Meili Auto incurred a total of 363 complaining posts on ts.21cn.com, a complaints hosting platform, 27.3% of which had been addressed by the company. The complaints were mainly about Meili Auto employees’ practice of deceiving them into applying for bigger than necessary loans when they were not fully informed or did not even have copies of the contracts. There were also complains about violent loan collection moves on behave of Meili Auto, such as frequent phone calls that disrupting everyday life or intimidating friends or relatives to repay their loans.

“We historically engaged third-party repossession agents to help us repossess car collateral from car buyers in default. We ceased such repossession operations in April 2019 due to our adjustment in business operations and management of legal and regulatory risks”, said the company in the prospectus.

It added that the company “currently utilize court proceedings, the improved credit reporting system in China, as well as negotiation with car buyers in default for voluntary surrender of the collateral as part of the plan to settle their outstanding debts.”

Engaging third-party repossession agents to collect loans can be problematic.

The headquarters of Hong Kong-listed 51 Credit Card in Hangzhou was raided by the police on Oct 21 for employing loan collection agencies that exhibited “violent behaviors” towards its debtors, shocking China’s entire fintech sector.