Deeply perturbed by the frequent news of harassment of the borrowers of digital loans in the hands of unauthorised lenders, the Reserve Bank of India (RBI) has released an implementation draft for the Working Group on Digital Lending to clamp down on the unauthorised practices adopted by some of the lenders.
“RBI has been working with the Working Group on Digital Lending. The working group was formed in January 2021 and released the first draft in Nov 2021. Finally the implementation draft was released on August 10, 2022,” said Ajay Chaurasia, Vice President – Business, Product & Marketing at RupeeRedee.
“Digital Lending Industry was expecting this from last one year, so that NBFC’s and Fintech can have clear guidelines to operate, specially serious players who have long term plans,” he added.
Chaurasia lists the important points of the implementation draft:
- This report covers RE’s regulated by RBI, Fintech’s which are working with RE’s and Entities which are working outside the purview of any statutory/regulatory provisions.
- Building the Regulatory Framework. All the Digital Lending Apps have to report the loans sourced to Credit Information Companies, also known as Credit Bureaus. Transunion(CIBIL), Experian, Equifax and CRIF.
- Consumer Protection and Conduct issues. Taking consent from customers before collecting information, Transparency in fees and charges, Overall APR to be disclosed to consumers including all fees. Automatic Credit limit increase is not allowed, Customer has to request for it now.
- Audit Trails for Technology and Data protection to be done by DLA’s. Specific consent to be taken from the customers.
Registered Entities (NBFC & Banks) will have to collect all the payment from customers. Fintech’s cannot collect the charges from customers, they can’t charge as well. RE’s will do the payment as per the agreed terms between RE and Fintech.
- Cooling Off Lock-in Period: Lots of customers fall in a never ending loop of these loans as they cannot repay. This period is to be given to customers to get out of loan debts.
- Self -Regulatory organisation Covering RE’s and DLA’s to be set up in Digital Lending Ecosystem for keeping an eye on Recovery Practices, Code of Conduct on Marketing standards, negative list of DLA’s/LSP.
- The government may consider framing a Legislation for Banning Unregulated Lending Activities (BULA) which will cover all entities not authorised by RBI.
- DIGITA (Digital India Trust Agency) and independent body to be formed who will verify DLA’s. Non verified DLA’s will be considered as unauthorised.
“Overall, RBI has taken strict action against unauthorised lenders in the market. This is for protecting the consumers from frauds, loan traps, harassment and data protection. While the majority of serious players in the market have been already following most of the suggested practices to comply with the regulations. Although the Digital Lending industry will have to adapt these norms as soon as possible. These guidelines will structure the digital lending ecosystem and will eliminate the illegitimate Apps from the market,” said Chaurasia.
“But at the same time, all these changes means the ease of doing business for NBFC’s with Fintech’s will become difficult. RE’s will have to do deeper due diligence of LSP’s/DLA’s, which will increase the cost. Based on these guidelines lots of product changes will be done in Digital Lending Apps to comply with all the regulations. While the Digital lending Industry might take a step back to evaluate and become more compliant, the next step will be much bigger and more transparency will be there for customers,” he added.