RBI warns against loans given on apps
Following cases of suicide over alleged harassment by recovery agents of entities that provided loans over mobile apps, the RBI has cautioned against such loans and has asked aggrieved NBFC borrowers to file complaints on its portal.
“There have been reports about individuals/small businesses falling prey to the growing number of unauthorized digital lending platforms/mobile apps on promises of getting loans in a quick and hassle-free manner. These reports also refer to excessive rates of interest and additional hidden charges being demanded from borrowers, adoption of unacceptable and high-handed recovery methods, and misuse of agreements to access data on the mobile phones of the borrowers,” the RBI said in a statement.
The regulator is also understood to have called for information from registered NBFCs that either partner fintech or lend via apps
Meanwhile, the Digital Lenders Association of India, or DLAI — with members like Capital Float, IndiaLends, and ZestMoney — has shared a checklist of telltale signs that a lending app is not RBI-regulated. A key giveaway is that the party asking for the loan agreement is not an RBI-regulated entity.
“The RBI has norms for data privacy, data localization, and recovery of bad loans. Apps that are registered as NBFCs come under these guidelines. Currently, fintechs that partner with banks and finance companies for lending are regulated only from the point that they plug into the lender’s network and those who are not registered and do not partner lenders are not regulated at all,” said Sandeep Srinivasa, founder of micro-lending startup RedCarpet.
The dodgy recovery practices may be new to India, but it started in China several years ago. “The practice of online blackmail was common in China a few years ago with lenders asking people who have fallen back on payments for their nude photographs as security. I have read reports of recovery agents doing the same in some cases here,” said Srinivasa.
The RBI went on to say that banks, finance companies, and entities regulated by state governments are allowed to lend and the general public should not share KYC documents with any other lender. It reiterated its directive earlier requiring digital platforms to disclose the names of the banks or finance companies on behalf of which they operate. Technology is also creating grey areas in lending.
Fintechs are providing buyers with a ‘buy-now, pay-later’ option — a feature that is halfway between a payment facility and a short-term loan. The U K Sinha committee on lending to small businesses had recommended creating a new regulated entity — loan service provider — that would represent the borrower and help them get loans. According to Srinivasa, the proposal to regulate platforms as loan service providers would have enabled the regulator to keep tabs on fintech that collect data to enable financing. This fintech distributes and do collections without reporting to the RBI or credit bureaus.
“DLAI has been working with its members and the regulatory bodies to control practices that are illegal or in any way harmful to the customer. However, we have noticed many such apps have found loopholes in the systems and reach vulnerable customers, often in urgent need of money,” said a DLAI official.