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RBI warns customers about predatory digital lending apps

The Reserve Bank of India (RBI) has warned borrowers and customers from availing loans from digital lending websites and mobile apps, which are unregulated entities. The warning comes in the wake of several borrowers committing suicides in recent weeks and months due to harassment they faced from purported employees and collect agents of these digital lending platforms.

In its release, the central bank says that members of public should verify the antecedents of the company/ firm offering loans online or through mobile apps. “There have been reports about individuals/small businesses falling prey to growing number of unauthorised digital lending platforms/Mobile Apps on promises of getting loans in quick and hassle-free manner,” it says.

“Moreover, consumers should never share copies of KYC documents with unidentified persons, unverified/unauthorised Apps and should report such Apps/Bank Account information associated with the Apps to concerned law enforcement agencies or use Sachet portal (https://sachet.rbi.org.in) to file an on-line complaint.” — RBI Press Release dated December 23, 2020

The RBI says that these excessive rates of interest, have hidden charges, unacceptable and high-handed recovery methods and the misuse of agreements to access data on the mobile phones of the borrowers. In June this year, it directed banks and non-bank lenders who use third-part fintech apps and websites to provide better transparency and  disclosures on their websites/apps and in the loan documentation.

Lack of regulatory oversight

Recently, politicians from Tamil Nadu raised this issue in public and to the Finance Ministry stating that the government should ban these online lending apps in the wake of customer complaints of harassment and borrowers committing suicide. Just this week, police officials in Hyderabad and Gurgaon conducted raids on four companies with links to Indonesia and China. The officials seized 700 laptops from the companies who had hired 1,100 executives workeing at call centres of their digital lending apps.

A press note from the Cyberabad Police, reviewed by MediaNama, said that they arrested employees and the directors of two companies that ran three apps  namely ‘Cash Mama’, ‘Dhana Dhan Loan’ and ‘Loan Zone’, which together have 1.5 lakh customers and around 70,000 active customers. While Cash Mama and Loan Zone had partnerships with 9 regulated non-banking finance companies (NBFCs), Dhana Dhan Loan did not. The Cyberabad Police has issued notices to the NBFCs, their managing directors and Google, it said.

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While Google pulled several digital lending apps from its PlayStore last month,  such apps keep replicating throughout the app store since there is very little oversight from the RBI or Google. While the RBI has strict guidelines on interest rates and practices to be followed by collection agents when attempting to recover or collect loan repayments, these apps use predatory tactics to earn high margins and recover the loan.

Many of these fraudulent digital lending apps for loans for as short as 10-days to as long as 12 months at interest rates in excess of 20-30%. In case the borrower defaults, employees of these apps harass the borrower by bombarding them with text messages or turn to social media to taunt the borrower amongst their friends and family. While the RBI has a digital ombudsman to register consumer complaints, since these apps and websites essentially operate as fly-by-night operations there is little that the regulator can do but to warn borrowers. Further, the ombudsman is meant for complaints against regulated entities.

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