The Kerala government is mulling a legal framework to regulate predatory digital lending apps, the News Minute reported. In recent months, a spate of suicides have taken place across multiple Indian cities as borrowers complain of harassment by purported employees of these digital lending apps. These apps are essentially unregulated, fly-by-the-night operators that offer low value loans for short-periods of time but at exorbitant interest rates.
The report says the government’s decision to bring in legislation came after a motion was introduced by Congress Member of Legislative Assembly K Sabarinath to introduce an appropriate law to regulate these apps, taking into account the various irregularities and issues that consumers have raised. Kerala Industries Minister EP Jayarajan said that at least 63 cases have been registered in the state so far and that according to the Kerala police, there are at least 400 such apps functioning from outside the state, the report says.
Further, the Kerala Police’s Crime Branch is also investigating these frauds that have taken place in the state through online loan apps, it added. Once a bill is framed and passed by the legislative assembly, Kerala will be the first state to enact a law to safeguard consumers from these predatory lending apps.
RBI warns of predatory lending apps
In a warning issued last month, the Reserve Bank of India (RBI) said that these apps charge 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 last 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.
While the RBI is attempting to warn consumers and ensure that regulated banks and non-bank lenders educate consumers, the central government is yet to cognisance of the menace of these lending apps.
Nearly two months ago, 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. Last month, 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.
Apps resurface amidst limited oversight from Google, RBI
While Google pulled several digital lending apps from its PlayStore in November, 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.