RBI’s warning to coercive digital lending apps: What borrowers must be aware of

The Reserve Bank of India (RBI) on Wednesday warned borrowers to be aware of digital lending entities that are promising personal loans within minutes and charging exorbitant rates of interest. They then tend to use aggressive methods to recover dues in case there is a default.

RBI says that borrowers must only borrow from firms that are either registered with the RBI or regulated by state governments. It has also mandated digital lending platforms to state the names and addresses of banks or non-banking finance corporations (NBFC), upfront.

The Central Bank’s warning has come after there have been several complaints about retail borrowers falling prey to a growing number of unauthorised digital lending platforms and mobile apps that promise quick loans in a hassle-free manner. The suicide cases of borrowers unable to pay loans associated with digital lending apps are also rising.

Payday loans are small-ticket loans (typically Rs 1,000 to Rs 3 lakh) given to people in the age group 21-35. While authorized ones do your know-your-customer verification, the unauthorised ones don’t even ask for any documents. “These loans are taken for paying school fees of children, medical emergency, business purposes, etc.,” says Ilica Chauhan, Vice President of PC financial service an NBFC which backs CashBean app-based digital lending platform. The self-employed borrow small amounts to meet business needs. Most of them borrow for seven days to three months. Interest rates vary from 25-40 percent a year, while the processing fee is 15-20 percent. In addition, an 18 percent goods and service tax (GST) is levied on the processing fees. Also, after the due date, lenders charge huge penalties (overdue fees).

The flipside? They get access to your mobile contact list once you download their apps and start using them. If you default, many use strong-arm tactics, such as public naming and shaming, to make you repay.

Here’s what RBI says and what you must remember:

Authenticate the fintech app

First, verify the credentials of the fintech. Do not share copies of know your customer (KYC) documents with unidentified persons, or unauthorized mobile apps. If you come across any unauthorized digital lenders or mobile apps, then you must file an online complaint on Sachet website, handled by the RBI.

How does the complaint mechanism work?

The Sachet website is meant to gather information regarding any unauthorized acceptance of deposits and lending money through various schemes by suspect entities so that timely action could be initiated against them by the regulator.

In case you notice any suspect activity such as an unauthorized digital website lending money, the same can be brought to the notice of the RBI by clicking on the “Help your Regulator” tab. You could also attach documents to support your information. The information submitted by you will be examined by the RBI and used for further action.

Also read: Know your rights to fend off recovery bullies unleashed by fintech lenders

The complaints submitted are immediately forwarded to the regulator/law enforcement authority that takes necessary action as per their procedures against dubious digital lenders.

What about digital lenders partnering banks or NBFCs?

Look for the partner bank or NBFC’s details. The loan agreement must mention these details. You should check the names and addresses of the NBFCs registered with the RBI, which can be accessed here.

“The guidelines which are set for NBFCs to repay loans and recovery are applicable to digital lenders because most fintechs are NBFCs themselves or have partnered with NBFCs,” says Parijat Garg, a credit scoring expert.