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Enforcement Directorate goes after predatory loan app operators: Report

The Enforcement Directorate (ED) and the Criminal Investigation Departments (CID) of various state police departments have begun investigating at least two dozen fake and predatory digital lending apps, many of whom are backed by Chinese actors, the Economic Times reported. The federal investigative agency and state police departments are also investigating money laundering charges against these apps and have issued notices to payment gateway providers, the report said.

Cyber-crime police officials in Hyderabad told MediaNama that several state police departments that had begun investigations into these fake lending apps, beginning in December, are now coordinating with each other. They said that while they have frozen bank accounts with over ₹100 crore, the ED had reached out to them last week to provide information based on their investigations. So far, over 30 arrests have been made in Chennai, Mumbai, Bengaluru, Gurugram and Hyderabad.

According to the report, payments companies Paytm and Razorpay have been sent notices by the ED and CID. They have been told to cancel accounts opened by these app operators and stop processing transactions, it said. Razorpay on its part has shut down at least 300-400 accounts that were used by these predatory loan app operators, at least 95% of transactions that were conducted by these apps went through its system, the report said citing unnamed sources.

MediaNama has reached out to Razorpay for comments. Their responses will be added once received. A Paytm spokesperson declined to comment.

These apps created merchant accounts on payment gateway platforms, circumventing Know-Your-Customer norms and checks and balances that the companies have put in place. These operators either were able to provide false documentation to fulfil the gateways’ KYC norms or they provided legitimate documents to the companies and were able to get away by processing a large volume of transactions. While some of these apps were backed by regulated non-banking financial companies (NBFCs), whose documentation may have fooled the payment gateway providers, their practices fall foul of the Reserve Bank of India’s regulations on lending and loan collection practices.

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Need to know

  • Hundreds of new digital lending apps emerged post COVID-19
  • These apps offer short-term loans at exorbitant interest rates, loans for as low as ₹3,000 at interest rates of 50-100% per annum
  • App operators harass borrowers whenever there is a delay in repayment
  • In total, these apps have processed transactions worth over ₹21,000 crore
  • Lending apps on the Google Play Store cannot offer such short-term loans for less than 60 days as per Google’s policies
  • Regulated lenders need to offer borrowers a minimum of 30 days for loan repayment, therefore loan tenure cannot be less than 30 days
  • Regulated lenders are mandated to encrypt data or mask sensitive personal information for KYC purposes
  • Fake digital lending apps use app permissions to gain unlawful access to sensitive customer information
  • Google has taken down over 200 of these apps over the past two weeks

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Reports on banking, payments, fintech and crypto-curencies. Additional reporting on media regulations, data protection and other areas.

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.

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