The digital lending space was rife with numerous complaints on low transparency, data theft and illegal loan recovery practices. In September 2020, the top 10 digital lenders came together and the FinTech Association for Consumer Empowerment (FACE) association was formed to improve digital lending practices. These founding members reportedly have more than 60 per cent market share in the digital lending. Akshay Mehrotra, Founding Member of FACE & Co-Founder and CEO of EarlySalary, spoke to Moneycontrol’s Hiral Thanawala on how FACE is gaining consumers’ confidence. He discusses measures taken by the association against unauthorised Chinese and foreign digital lenders that promise quick loans in a hassle-free manner. He also lists the precautions consumers should take while choosing a digital lender. Excerpts:
What are the key steps that FACE took to gain consumers’ confidence on digital lenders?
The first thing FACE did was to create a code of conduct for digital lenders. This code of conduct discusses the standard collection practices, transparency needed in the processes and penalties in clear terms. The digital lending firms associated with FACE carry the logo on their websites and digital lending apps. These members follow a common code of conduct.
We clearly display the partnering lending institution’s details on the website and app. So, the transparency is completely maintained. Also, we disseminate the fair lending practices code through our social media platforms.
What are the requirements for joining the FACE and do you reject certain applications?
There are two broad rules to become a FACE member. First, you should be a digital consumer lender alone and, second, either you should own an NBFC within your group or work with a large regulated financial institution. Also, the digital lender has to follow our code of conduct.
The independent governing council of the association evaluates applications of the digital lenders. The governing council looks into the digital lending practices, products being offered of the firms and then decides whether they can be a part of the FACE.
There are cases where we have not approved some applications. For instance, there are digital lenders offering 7-15 days kind of loans and charging higher interest rates. They had approached the association to become members, but we didn’t approve their applications.
In 2020, there were numerous complaints against Chinese and foreign digital lenders due to unethical digital lending practices. What did FACE do at that time?
When complaints from consumers started pouring in, the association members immediately identified the gaps in the digital lending industry’s practices, leading to unfair moves from some of the Chinese and foreign digital lenders. They were sub-prime in nature. They did not have any license for lending to Indian consumers. They just had a website hosted in the foreign country and a mobile app. The consumers were falling prey to these foreign digital lenders who had hidden charges and levied high interest rates.
FACE immediately put control systems in place to halt these foreign digital lenders. We reported these Chinese and foreign digital lenders to the regulator and Google. Then Google managed to pull down some of these digital lending apps from Play store in India. We educated consumers on how the Chinese and foreign digital lending apps were operating and cautioned them not to fall prey.
How have consumers benefited after the formation of FACE?
Customers can identify which companies follow strict code of conduct and are willing to be more transparent as they are members of FACE. We have started an education series for consumers on identifying the right digital lenders. However, we are in the early stage of becoming like the Association of Mutual Funds in India (AMFI), where we could start an education series on a large scale. At present, our education series is mainly online; it has not really gone to a mass media platform.
We are focused on making sure that the industry works in the correct manner. In last three months, we have put out a code of conduct and framed proper know-your-customer requirements for consumers.
Does FACE look into consumer issues or problems directly?Today, FACE is helping in clearly laying out processes for member companies to follow for complaint redressal. FACE currently cannot be an extended arm for complaint management. The RBI ombudsman will be right forum for this. We are hoping that the industry builds a self-regulatory organisation (SRO).