Crackdown Against Instant Loan Apps Continue: 27 More Fake Lending Apps Banned By Govt

Govt has banned 27 undisclosed digital lending apps in light of several instances of breach of conduct

The Ministry of Electronics and Information Technology (MeitY) has banned 27 undisclosed digital loan/lending apps after receiving a request from the Ministry of Home Affairs for the same. 

The ban was carried out under Section 69A of the Information Technology Act, 2000.

The ban seeks to single out fraudulent and mostly China-based digital loan apps that have unauthorised and unverified lenders, employ unethical and heavy handed recovery tactics and store user data for malicious intents and purposes.

Investigation by RBI

RBI had asked banks and Non-Banking Financial Companies (NBFC) to share names of such apps back in June 24, 2020. 

Later on Dec 23, 2020 the general public was alerted to the existence of such fraudulent apps and have been urged to verify the lenders they are entering into transactions with. 

Then on Jan 13 ,2021 a Working Group was constituted to examine all facets of online lending activities including those operating under the purview of RBI (that is, platforms and apps operated by RBI-regulated entities).

The group was also directed to put out recommendations related to regulatory and customer protection measures.

Police Intervention

Last December, 17 people were arrested in Hyderabad on charges of online loan app fraud. Then in January a Chinese national was arrested by Telangana police also on similar charges. 

At least 3 borrowers were found dead by suicide also in Telangana. They cited harassment by lenders as abetment. 

Google Ban

Google also had to get involved when they delisted about 100 apps from its Play Store which were found to be noncompliant with legal and regulatory framework. 

The existing apps (not banned) popular in the Indian digital loan market are Capital Float, Zest Money, Indifi, KredX, BharatPe, Lendingkart, Paisabazaar, and more.

Why Digital Lending is Popular and Growing

One of several advantages is the inclusion aspect wherein there is no discrimination when it comes to receiving loans, especially in a country where microenterprises and low-income persons struggle for credit. 

Informal borrowing is given competition as Indians mostly rely on social channels for credit such as moneylenders, family or friends . These sources lend credit at very high interest rates which is a tradeoff for convenience and flexibility. 

A lot of time is saved from standing in lines in banks and the tedious task of filling multiple forms.

How Fraudulent Apps Exploit Customers

They impose exorbitant interest rates along with hidden charges.

They employ unethical loan recovery tactics such as threatening calls and in some reported instances where female customers were blackmailed with a digitally manipulated pornographic image of themselves.

They have free access to sensitive user data by exploitation of privacy agreements. 

RBI has recommended not to submit KYC documents to unauthorised/ unidentified lenders and to report them to concerned authorities. 

State of Affairs in India and How to Move Forward 

The digital lending market in India jumped five times from  $33 billion in FY15 to $150 billion in FY20 and is forecasted to double in growth to $350-billion mark by FY23.

These apps use technology for authentication and credit assessment. 

In a burgeoning market it is important to ensure a safe digital environment where financial transactions can take place without threat or risk to either party. 

On the topic of user data, such apps should be monitored with regards to the type of data they handle, the duration of time it is stored and restrictions on its use.

A code of conduct needs to be put in place where it is mandatory for such companies to conduct itself with integrity, transparency and with consumer protection and interests in mind. 

Disclosure and grievance redressal also has to be prioritised and appropriate channels should be developed for the same.

Finally, consumer awareness has to be ramped up. The public should be educated on digital lenders and how they should look out for unscrupulous activities

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