Digital Lending Will Be Regulated By Govt; No More Customer Harassment, Illegal Lending Apps

The Reserve Bank of India has proposed some new rules and has asked the government to frame new legislation.

This legislation will be to put an end to illegal digital lending that goes on unsupervised in the country.

Government To Frame New Legislation To Curb Illegal Digital Lending

Apparently, there are more than 1,100 loan apps in various app stores that indulge in digital lending and 600 of them are illegal.

The legislation has been proposed as the customers of some of these apps have alleged harassment by these apps for recovery. There have been multiple complaints against harassment by unauthorized and are operated by offshore entities.

There also has been news that some of the borrowers have committed suicide, blaming the harassment by the apps. Additionally, digital lenders have been detected to repatriate unlawful profits outside the country. 

A working group on digital lending, which also includes lending through online platforms and mobile apps has submitted a few recommendations. This group is chaired by Jayant Kumar Dash who is the executive director of RBI. 

Recommendations By RBI-Led Group

One of these recommendations also includes a nodal agency to verify all digital lending apps and set up a self-regulatory organization.

As per the group, “Since these products do not meet the requirements of traditional credit facilities, a suitable notification may be issued by the government of India in this regard.” 

The group has also recommended that there should be tighter norms for “buy now pay later” loans. The proposal states that they should be treated as part of balance sheet lending.

As per the report, these recommendations were designed with the intention to protect the integrity of the system against the regulated entities that are not authorized to carry out the lending business. It will be the responsibility of the regulated entities to make sure that the third-party lending service providers are following a standard protocol of business. 

An institutional mechanism has also been developed to make sure that the basic level of customer suitability, appropriateness, and protection of data privacy is maintained.