Loan Apps: RBI Warns Against App Loans | Business News in India
“There have been reports of individuals / small businesses falling prey to a growing number of unauthorized digital lending platforms / mobile apps promising to get loans in a quick and hassle-free manner. These reports also refer to excessive interest rates and additional hidden fees demanded from borrowers, the adoption of unacceptable and overbearing collection methods, and the misuse of agreements to access data on creditors’ cell phones. borrowers, ”the RBI said in a statement. .
The regulator is also said to have requested information from registered NBFCs which are partners of fintechs or lend via applications.
Meanwhile, the Digital Lenders Association of India, or DLAI – with members like Capital Float, IndiaLends, and ZestMoney – shared a checklist of telltale signs that a loan app is not regulated by the RBI. A key giveaway is that the party requesting the loan agreement is not an RBI regulated entity.
“The RBI has standards for data privacy, data tracing and bad debt collection. Applications registered as NBFC fall under these guidelines. Currently, fintechs that partner with banks and finance companies for lending are only regulated when they connect to the lender’s network and those that are not registered and are not partners of lenders. are not regulated at all, ”said Sandeep Srinivasa, founder of micro-loan start-up RedCarpet.
Questionable salvage practices may be new to India, but they started in China several years ago. “The practice of online blackmail was common in China a few years ago, with lenders asking people who withdrew payments for their nude photographs as collateral. I have read reports of recovery agents doing the same in some cases here, ”Srinivasa said.
The RBI went on to say that banks, financial companies and entities regulated by state governments are allowed to lend and that the general public should not share KYC documents with any other lender. He reiterated his earlier directive requiring digital platforms to disclose the names of banks or financial companies on whose behalf they operate.
Technology is also creating gray areas in the area of loans. Fintechs offer buyers a “buy now, pay later” option, a feature that sits somewhere between ease of payment and a short-term loan. Britain’s Sinha Committee on Small Business Lending had recommended the creation of a new regulated entity – the loan service provider – which would represent the borrower and help them obtain loans.
According to Srinivasa, the proposal to regulate platforms as loan service providers would have allowed the regulator to keep tabs on fintechs that collect data to enable funding. These fintechs distribute and collect collections without reporting to the RBI or credit bureaus.
“DLAI has worked with its members and regulatory bodies to control practices that are illegal or harmful in any way to the customer. However, we have noticed that many such applications have found loopholes in systems and reach vulnerable customers, often in dire need of money, ”said a DLAI official.