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RBI seeks industry inputs on regulating digital lending apps: Report

The Reserve Bank of India’s (RBI) working group in digital lending has approached Google, fintech lenders and non-bank lenders to submit their inputs on how best to regulate digital lending apps, the Economic Times reported.

The central bank has sought information from Google on its policies for on-boarding lending apps on the Play Store and a review of apps that it banned from the Android app store from January onward, the report said. Google has banned more than 400 digital lending apps from its app store over the past few months, after complaints of harassment by purported employees of these apps emerged, it added.

The report said that the Fintech Associate for Consumer Empowerment (FACE) and the Digital Lenders Association of India (DLAI) have already submitted their inputs to the working group, suggesting that the regulator introduce industry-wide code of conduct and give approval to set up a self-regulatory organisation for the entire ecosystem.

Further, the digital lenders have also recommend that all credit products should be guided by common standards so that loopholes exploited by fake lending apps can be plugged. They also suggested that the regulatory mandate disclosures by digital lenders on all charges payable by the borrowers, the report added.

A little background

Over the last year, a number of unauthorised digital lending apps popped up on Google’s Play Store. But since these apps are not regulated or licensed they charge exorbitant fees and interest rates, and resort to extortion and blackmail tactics to collect payments from borrowers. As a result, a number of borrowers have committed suicide in the last few months.

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Third-party loan marketplaces and apps which work with regulated non-bank lenders and banks have to follow strict guidelines on fees, interest rates, collection practices and risk management. Many of the predatory lending apps that have emerged in the last year either work with small non-bank lenders, which are licensed by the RBI, or they work outside any rules or regulatory framework.

The RBI expects regulated lenders to ensure that their partners, the third-party players, follow similar rules and regulations that they are mandated to follow. But since the central banks’ supervisory function is limited, many regulated entities go under the radar and are able to engage in illegal, or at the least questionable, activities.

The regulator and state police departments have been involved in pushing Google to cleanse its app store of these predatory lending apps.

All you need to know: Digital lending apps

  • Hundreds of new digital lending apps have emerged post COVID-19
  • These apps offer short-term loans anywhere from six days to one month at exorbitant interest rates
  • They provide loans for as low as Rs 3,000 at interest rates of 50-100% per annum
  • 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 Know-Your-Customer purposes
  • App operators harass, intimidate and extort borrowers whenever there is a delay in repayment or even if the borrower has repaid the principal and interest
  • The list app permissions that predatory lending apps seek from borrower, effectively gives their operators unlawful access to sensitive customer information
  • Google has taken down over 400 of these apps from its Play Store over the past three months

Timeline of events: A case for regulation

  • Oct and Nov 2020:Reports of suicide begin to emerge that borrowers from fake or predatory digital lending apps were facing harrasment and blackmail by purported employees of these apps
  • Nov 18, 2020: Google removes five unauthorised lending apps from its Play Store
  • Nov 28, 2020: Politicians from Tamil Nadu write to the Finance Ministry calling for a ban on online lending apps
  • Dec 22-31, 2020: Hyderabad Police arrest 16 people, including Chinese nationals, across 27 cases
  • Dec 23, 2020: RBI cautions borrowers and customers from availing loans from digital lending websites and mobile apps, which are unregulated entities
  • Dec 27, 2020: Hyderabad Police arrest 3 more people, including one Chinese national
  • Dec 28, 2020: Cashless Consumer publishes an analysis of 1,000 lending apps on the Play Store and finds that only 200 apps are legitimate and licensed to operate in India. At least 50 of these apps are using Alibaba servers sitting abroad
  • Dec 29, 2020: Cashless Consumer and Ban Breach release list of 426 rogue digital lending apps on the Play Store, and 260 loan apps not on the android app store
  • Dec 31, 2021: Google removes over 400 digital lending apps from its Play Store, according to industry sources
  • Jan 1, 2021: Delhi and Hyderabad Police arrest Chinese national trying to flee the country
  • Jan 3, 2021: Chennai Police arrest two Chinese nationals in Bengaluru in the fake digital loan app case
  • Jan 4, 2021: Kerala Government proposes to introduce law to regulate predatory digital lending apps
  • RBI appoints an internal working group to recommend regulations for digital lending platforms and mobile applications. The working group is also tasked with recommending policies for consumer protection and creating a Fair Practices Code
  • Jan 14, 2021: Telangana Police police arrest two more people from Thane, near Mumbai, including Chinese nationals
  • Jan 14, 2021: Google sends emails to several digital lending mobile applications on its Play Store, requiring them submit details of their regulatory and legal status within five days.
  • Jan 18, 2021: Telangana Police tells MediaNama that since many servers of these apps sit abroad, it is likely that these app operators have stolen all the data provided by the borrowers.
  • Jan 22, 2021: Enforcement Directorate begins investigation into predatory loan apps and their backers. Many of these apps were being operated by small non-bank lenders licensed to operate by the RBI or by nefarious Chinese investors and entities.
  • Feb 3, 2021: Supreme Court directs the Save Them India Foundation to approach the Ministry of Home Affairs or Ministry of Finance, in order to seek action against predatory lending apps
  • Feb 4, 2021: IT Ministry passes responsibility to investigate cases of malpractices by predatory digital lending apps to state governments
  • Feb 10, 2021: RBI received 1,509 complaints related to digital lending mobile applications in 2020, of which around 1,019 were against unregulated and unregistered digital loan apps
  • Mar 11, 2021: Hyderabad Police arrest 27-year-old  in Bengaluru who was a director in 9 companies that operated as fronts for the predatory loan apps. Total arrests stand at 21 as of date

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

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