Politicians from Tamil Nadu have called for a ban of online lending apps in the wake of reports that employees of these apps are harassing customers on loan repayments. Such apps, known as pay-day loan apps, provide short-term loans at high interest rates. But they are unregulated entities and are not permitted to lend credit in the country.
Atleast three people have died of suicide in recent weeks, after being harassed by employees of these apps. A 23-year old IT professional in Chennai killed himself after taking a loan from Rupee Bazaar. He had reportedly complained to the police about alleged bullying by the lender’s employees. In an earlier case, a borrower from Tamil Nadu died of suicide after harassment by a representative from Udhaar Loan. Further, an MBA graduate from Visakhapatnam, Andhra Pradesh hung herself after borrowing ₹25,000 from various mobile apps.
‘Ban online lending apps, bring regulation’
In a statement on Friday, S Ramadoss, founder of Pattali Makkal Katchi from Tamil Nadu, demanded a ban on such lending apps, adding that it was reprehensible that no action has been taken against them so far, The Hindu reported. “Online loan sharking should be banned. Otherwise, the number of people committing suicide would only increase,” he said.
Earlier this month, Dr Senthilkumar, Member of Parliament from Tamil Nadu, wrote to the Finance Minister requesting the government to ban the apps, monitor their activity and bring out strict regulations to ensure the general public isn’t affected adversely by them. “The current COVID-19 pandemic has forced people to go for online personal loans. There are new companies in online lending who do not have bank approval or physical locations, long histories of business […] To ban online loans, loan apps as many families are suffering and threatening calls are being made to all the persons in their contact list of the person who has availed the loan via the loan app and few suicides are also being reported,” he said in a letter.
Fly by-the-night lenders
These apps have gained resonance among young people at a time when over 41 lakh youth have been rendered unemployed by the pandemic. According to a November 10 blog post by Cashless Consumer, at least 10 such lending apps have gained between 400,000 to 1 million users in a short span of 2–3 months.
Recently, Google removed five digital lending apps which offer short-term digital loans at high interest rates, from its Android Play Store. The tech giant said that these loan apps were in violation of their policies, yet for months they were operational having slipped under the radar. As of date, while one of the apps mentioned in the Cashless Consumer blog post remains on the Play Store, MediaNama found several similar apps and complaints while perusing Twitter and on the mobile Play Store. Some of these apps offer loans from as low as ₹2,000 to ₹5,000 to as high as ₹2 lakh at interests that can go anywhere up to 36%.
In June, the Reserve Bank of India issued guidelines to banks and non-bank lenders providing digital loans to provide better disclosures to consumers. However, since the central banks’ guideline applies to regulated entities it has no oversight on these pay-day loan apps, resulting in Google being responsible for hosting them. While the RBI has ultimate authority over how banks and non-bank players disburse loans and conduct their business including the recovery agents, it has an Ombudsman Scheme for both types of lenders and also set up a digital payments ombudsman in January last year. According to the 2018-19 annual report of the RBI’s Ombudsman, around 20% of nearly 2 lakh complaints received were regarding non-adherence to the Fair Practice Code.
Further, the Banking Codes and Standards Board of India have issued a Code of Customer Rights detailing the practices that banks must ensure its recovery agents follow when contacting customers. while, two indsutry bodies, the Fintech Association for Consumer Empowerment and the Digital Lenders Association of India both also have a code of conduct.