INDIA: The Reserve Bank of India on Wednesday issued detailed guidelines to digital lenders in response to the growing number of frauds and illegal activities, that will increase scrutiny and oversight of digital loan applications and the lenders that work with them.
Only regulated entities such as banks and shadow banks will be allowed to disburse and collect loan repayments and this will not be left to third parties, the RBI said.
The guidelines have been issued based on inputs received from the Working Group on “Digital Lending, including Lending through Online Platforms and Mobile Applications” (WGDL). The RBI had set up a task force in January last year to look into digital lending issues and draft regulations.
The central bank has strengthened the regulatory framework to support the orderly growth of lending through digital lending, based on the suggestions of the task force.
All loan disbursements and repayments must be made only between the bank accounts of the borrower and the regulated entity (RE) without any pass-through or joint account of the loan service provider (LSP) or any third party, RBI states.
All fees, charges, and other payables, payable to LSP service providers in the loan brokerage process will be paid directly by RE and not by the borrower.
A Standardized Key Facts Statement (KFS) must be provided to the borrower before entering into a loan agreement.
Borrowers must be told the aggregate cost of digital loans in the form of an annual percentage rate (APR). APR will also be part of KFS.
An automatic increase of the credit limit without the express consent of the borrower is prohibited. The loan agreement includes a cooling off/search period during which borrowers can terminate digital loans by paying the principal and prorated APR without any penalty.
RE shall ensure that they and the ISPs engaged by them have an appropriate Grievance Officer at the node to deal with complaints related to FinTech/Digital Lending. Such Grievance Officers shall also deal with the grievances of their respective Digital Lending Apps (DLAs). Details of the Complaints Officer will be prominently displayed on the RE website, its LSP and, where applicable, the DLA.
As per the existing RBI guidelines, if any complaint filed by the borrower is not resolved by the RE within the stipulated time (currently 30 days), he can file a complaint under the Reserve Bank – Integrated Ombudsman Scheme (RB-IOS).
Data collected by DLA should be needs-based only, have a clear audit trail and should only be done with the borrower’s prior consent.
Borrowers may be given the option to accept or decline consent to the use of specific data, including the option to revoke previously granted consent, in addition to the option to delete data collected from DLA/LSP borrowers.
“Any loans obtained through DLA (either from an RE or an LSP engaged by the RE) must be reported by the RE to the Credit Information Companies (CIC), regardless of their nature or duration,” RBI said.
All new digital lending products extended by the RE through trading platforms involving short-term credit or deferred payments must be reported to CIC by RE.
The RBI had set up a task force in January last year to look into digital lending issues and draft regulations.
Last month, RBI Governor Shaktikanta Das said that digital lending players should only carry out activities for which they have licenses and violation of these is not acceptable.
In June, the RBI asked non-bank issuers of prepaid payment instruments (PPIs) not to encumber their wallets and cards from lines of credit or pre-set borrowing limits.
“The (digital lending) businesses should operate based on the licenses they have been granted. If they are doing anything beyond that, they should ask for our permission,” the Central Bank stated.
“Without permission, if they are engaged in activities for which they are not licensed, then it is not acceptable. It goes beyond the licensing requirements and there will be a risk that we cannot afford,” Das said at an event organized by Bank of Baroda.