RBI steps in to end harassment of borrowers, prohibits digital lenders from accessing smartphone data | The Financial Express

RBI steps in to end harassment of borrowers, prohibits digital lenders from accessing smartphone data

With the news of harassment of customers by digital lenders becoming frequent, the RBI has decided to issue stringent guidelines to put an end to the malpractice.

RBI steps in to end harassment of borrowers, prohibits digital lenders from accessing smartphone data
The RBI guidelines are not only aimed at ending the harassment of customers, but also at putting a regulation in place for the so far unregulated mushrooming of fintech companies venturing into the space of digital lending.

With the news of harassment of customers by digital lenders becoming frequent – in some cases the harassed borrowers even committing suicide – the Reserve Bank of India (RBI) has decided to issue stringent guidelines to put an end to the malpractice.

The RBI guidelines are not only aimed at ending the harassment of customers, but also at putting a regulation in place for the so far unregulated mushrooming of fintech companies venturing into the space of digital lending.

However, the RBI crackdown on digital lenders will hit the fintech business models, resulting in a rise in the cost of accessing digital loans.

The RBI’s digital lending guidelines will also make digital lenders raise their operational intensity for lenders in the near term and prod fintech’s to become regulated entities.

“This is a welcome move by the RBI and will help the lending market become stronger and more sustainable. Pure play fintech’s who are not into lending need not worry about these at all, but at the same time fintech’s who have entered into surrogate lending will feel the need to either convert into a regulated entity (RE) or to become a lender service provider (LSP) with complete transparency. Serious fintechs, who have built real lending models, will find it useful to convert into a RE and would add value to the entire ecosystem,” said Dr Ravi Modani, Founder & CEO at 121 Finance.

There are allegations that the digital lenders don’t provide complete information about the cost of borrowing and the consequences of delay or lapses in loan repayments. More seriously, such fintech companies invade the smartphone of the borrowers by installing malwares and accessing the contact list. In case of any default, such digital lenders call the persons present in the contact list to defame the borrower, leading to immense harassment.

Under the new rules, regulated entities are required to disclose all costs upfront in a digital loan product to the customer and they are not allowed to scrub or read borrowers’ smartphones.

“Essentially the underwriting should be based on the ability and intention of the borrower and not based on illegal collection mechanisms based on fear or social outcast. We have seen that transparency always increases trust and increases the breath of any market, especially into financial services. Mutual funds, stock markets and other disclosures have set this precedent. So, if fintech has a real use case for charging the fees, then why shouldn’t they be transparent in disclosing it,” said Dr. Modani.

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First published on: 26-08-2022 at 19:05 IST