NEW DELHI: In order to protect customers’ interests, a Reserve Bank working committee has proposed enacting separate regulations to prevent illicit digital lending through applications.
Other ideas from the working group include submitting digital lending applications to a nodal agency verification process and establishing a Self-Regulatory Organization (SRO) covering the participants in the digital lending ecosystem.
According to a senior official, the report’s focus has been on improving customers protection and keeping the digital lending ecosystem safe and secure while promoting innovation.
“According to the Working Group’s findings, there were roughly 1,100 lending apps available for Indian Android users across over 80 application stores (from January 1, 2021 to February 28, 2021),” claimed the report, adding that there were over 600 unlawful loan apps.
Complaints against DLAs — Sachet, a Reserve Bank-created portal, received 2,562 complaints from January 2020 to March 2021, according to the report.
The RBI established a working group on digital lending, including lending through online platforms and mobile apps, in January 2021, chaired by Executive Director Jayant Kumar Dash.
The working group was formed in response to concerns about company behaviour and client protection that have arisen as a result of the surge in digital lending activity.
The following are a gist of the key recommendations:
Stakeholders have until December 31 to submit comments on the report to the RBI.
- Subjecting the Digital Lending Apps to a verification process by a nodal agency to be setup in consultation with stakeholders.
- Setting up of a Self-Regulatory Organisation (SRO) covering the participants in the digital lending ecosystem.
- A separate legislation to prevent illegal digital lending activities.
- Development of certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions.
- Disbursement of loans directly into the bank accounts of borrowers; disbursement and servicing of loans only through bank accounts of the digital lenders.
- Data collection with prior and explicit consent of borrowers with verifiable audit trails.
- All data to be stored in servers located in India.
- Algorithmic features used in digital lending to be documented to ensure necessary transparency.
- Each digital lender to provide a key fact statement in a standardised format including the Annual Percentage Rate.
- Use of unsolicited commercial communications for digital loans to be governed by a Code of Conduct to be put in place by the proposed SRO.
- Maintenance of a ‘negative list’ of Lending Service Providers by the proposed SRO.
- Standardised code of conduct for recovery to be framed by the proposed SRO in consultation with RBI.
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