RBI Digital Lending Rules: The Reserve Bank of India (RBI) has issued strict guidelines for digital lending in the country. Borrowers are set to benefit from the new RBI guidelines directed at curbing rampant malpractices in the digital lending ecosystem.
The RBI has issued the guidelines based on recommendations of a working group for digital lending which submitted its report in November 2021. You can read more details of the guidelines issued by the RBI here. In this article, we take a look at what the borrowers should know before going for a loan in view of the new lending norms issued by the RBI.
Legal experts say that borrowers should know the safeguards assured by the RBI’s new regulatory framework for digital lending.
“These norms were required to protect the interest of the borrowers and to ensure that the money cycle is taking place through legitimate apps with proper KYC structure and audit mechanism as a lot number of fake applications are being reported and the end user incur losses. This will not only ensure that the app is functioning in compliance with applicable laws and is not indulging in malpractices but will also help the borrowers make informed choices regarding credits and borrowings,” Aditya Chopra, Managing Partner at Victoriam Legalis – Advocates & Solicitors, told FE.
The safeguards provided under the framework will ensure that the interests of borrowers are protected and will increase consumer confidence in the digital lending ecosystem, according to Avinash Kumar Khard, Partner, DSK Legal.
“The specification related to the cooling off period will also provide greater comfort to the borrowers. The provision for appointing a nodal grievance redressal officer will further result in the protection of the borrower and help identify consumer grievances on an ongoing basis, in turn aiding in bettering the digital lending sphere and overall development of fintech in India. The standardised Key Fact Statement will provide greater transparency in relation to the costs and charges payable in relation to a loan,” said Khard.
The new norms would also ensure data protection as the borrower would have the option to either accept, deny or revoke its consent for use of any specific data collected by digital lenders.
“The new norms ensure data protection/ privacy of the borrower, the framework provides that the Digital Lending Apps (‘DLAs’) shall be allowed to collect only need-based data with the prior explicit consent of the borrower. In addition to this, the borrower shall also have the option to either accept, deny or revoke its consent for use of any specific data along with the option to delete any data collected by the DLAs. This is critical as it comes at a point where the government has withdrawn the Personal Data Protection Bill, 2019, which also aimed at regulating/protecting such sensitive and critical personal data,” said Jayashree Parihar, Counsel at PSL Advocates & Solicitors.
Experts shared the following points borrowers should know about the new digital lending framework:
- A borrower should not pay any fees or any other additional charges to the Lending Service Provider (LSP), such fees should be taken care off by the Regulatory Entity.
- A borrower should obtain a Key Fact Statement (KFS) from the Regulatory Entity before executing any loan contract. A KFS must contain the all inclusive costs of digital loans in the form of an annual percentage rate (APR). RBI has made it mandatory for a Regulatory Entity to contain such all-inclusive costs.
- Credit limit cannot be increased without the explicit consent of the borrower. The loan agreement should further contain a cooling-off period during which borrowers can exit digital loans by paying the principal and the proportionate APR without any penalty.
- To raise their grievances and complaints borrowers can reach out to nodal grievance redressal officers engaged by the Regulated Entities and the LSPs. A borrower can also complain against their digital lending mobile app. The details of the officers will be there on the websites of Regulated Entity, LSPs and the app.
- The complaint should be resolved within 30 days of time, in case when the complaint is not resolved within 30 days the borrower can directly reach out to RBI.
- Digital lending apps cannot collect user data without explicit consent of the borrower. Furthermore, such data collection should be need-based and show clear audit trails.
- A borrower will have the option to accept or deny consent for the use of specific data, including the option to revoke previously granted consent, besides an option to delete the data collected from borrowers by the lending apps or LSPs.A borrower should only engage with authorized and trusted lending apps.
In order to tackle the malpractices in digital lending, the RBI had constituted a working group on ‘digital lending including lending through online platforms and mobile apps’ which released its report on November 18, 2021 (“Report”). Basis this Report, RBI released the regulatory framework to cater to the growth of digital lending on Wednesday (August 10, 2022.)
(This story has been updated with additional information and expert comments)