RBI seeks input from industry on the regulation of digital credit apps: report

The Reserve Bank of India’s (RBI) digital lending working group reached out to Google, fintech lenders and non-bank lenders to submit their contributions on the best regulation of digital lending apps, according to the Economic Times reported.

The central bank has requested information from Google about its policies for adding credit apps to the Play Store and a review of the apps, which it banned from the Android app store from January, the report said. Google has banned more than 400 digital loan apps from its app store in the past few months after complaints about the harassment of these apps by alleged employees of these apps surfaced.

According to the report, the Fintech Associate for Consumer Empowerment (FACE) and the Digital Lenders Association of India (DLAI) have already submitted their contributions to the working group, suggesting that the regulator put in place an industry-wide code of conduct and the facility approve a self-regulatory organization for the whole Ecosystem.

In addition, the digital lenders have also recommended that all loan products should be based on common standards so that loopholes that are exploited by fake loan apps can be closed. They also suggested that regulators require digital lenders to disclose all fees payable by borrowers, the report added.

A little background

A number of unauthorized digital loan apps have appeared on Google’s Play Store over the past year. However, because these apps are not regulated or licensed, they charge exorbitant fees and interest rates, and resort to extortion and extortion tactics to collect payments from borrowers. As a result, several borrowers have committed suicide in the past few months.

Third-party credit marketplaces and apps that work with regulated non-bank lenders and banks must adhere to strict guidelines on fees, interest rates, collection practices, and risk management. Many of the predatory lending apps that emerged last year either work with small non-bank lenders who are licensed by the RBI, or they work outside of any rules or regulatory framework.

RBI expects regulated lenders to ensure that their third party vendor partners adhere to similar rules and regulations that they are required to adhere to. However, because the supervisory role of central banks is limited, many regulated companies fall under the radar and may engage in illegal or at least questionable activities.

The regulator and state police were involved in getting Google to purge these predatory loan apps from its app store.

All You Need To Know: Digital Loan Apps

  • Hundreds of new digital loan apps have emerged after COVID-19
  • These apps offer short term loans from six days to a month at exorbitant interest rates
  • They offer loans for as low as Rs 3,000 at interest rates of 50-100% per year
  • Lending apps in the Google Play Store cannot offer such short-term loans for less than 60 days, according to Google Guidelines
    • Regulated lenders must offer borrowers at least 30 days to repay the loan, so the repayment period cannot be less than 30 days
    • Regulated lenders are required to encrypt data or mask sensitive personal data for know-your-customer purposes
  • App operators harass, shy and blackmail borrowers if there is a delay in repayment or if the borrower has repaid principal and interest
  • The list app permissions that predatory loan apps demand from the borrower effectively give their operators unlawful access to sensitive customer information
  • Google removed over 400 of these apps from its Play Store in the past three months

Schedule of Events: A Case for Regulation

  • Oct and Nov 2020: Reports from Suicide are beginning to surface that borrowers of counterfeit or predatory digital loan apps have faced harassment and blackmail by alleged employees of these apps
  • 11/18/2020: Google removes five unauthorized rental apps from its Play Store
  • 11/28/2020: Politician from Tamil Nadu are writing to the Treasury Department calling for online loan apps to be banned
  • 22nd-31st December 2020: Hyderabad Police 16 people, including Chinese nationals, were arrested in 27 cases
  • 23 Dec 2020: RBI Precautions Borrowers and customers to borrow from digital lending websites and mobile apps that are unregulated companies
  • Dec 27, 2020: Hyderabad Police Arrest 3 more people, including a Chinese national
  • Dec 28, 2020: Cashless consumer publishes an analysis of 1,000 rental apps on the Play Store and finds that only 200 apps are legitimate and licensed to operate in India. At least 50 of these apps are using Alibaba servers overseas
  • 29 Dec 2020: Cashless consumer and Ban Breach Publication list of 426 fraudulent digital loan apps in the Play Store and 260 loan apps that are not in the Android App Store
  • December 31, 2021: Google removes over 400 digital loan apps from its Play Store, according to industry sources
  • 01/01/2021: Delhi and Hyderabad Police Arrest Chinese citizen trying to flee the country
  • January 3, 2021: Chennai Police arrest two Chinese nationals in Bengaluru in case of counterfeit digital credit app
  • January 4, 2021: Government of Kerala proposes to introduce a law to regulate predatory digital loan apps
  • RBI appoints one internal working group Recommend regulations for digital credit platforms and mobile applications. The working group also has the task of recommending guidelines for consumer protection and drawing up a code of fair practice
  • 01/14/2021: Telangana police Police arrest two other people, including Chinese nationals, from Thane, near Mumbai
  • 01/14/2021: Google sends emails to several mobile digital lending applications on its Play Store, asking them to provide details of their regulatory and legal status within five days.
  • January 18, 2021: Telangana police MediaNama informs that it is likely that these app operators have stolen all data provided by the borrowers, as many servers of these apps are located abroad.
  • January 22nd, 2021: Enforcement Directorate begins investigating predatory loan apps and their financiers. Many of these apps were run by small non-bank lenders licensed by the RBI or by nefarious Chinese investors and corporations.
  • February 3, 2021: Supreme Court instructs Save Them India Foundation to contact the Home Office or Treasury Department for action against predatory loan apps
  • February 4, 2021: IT Ministry transfers responsibility for investigating cases of misbehavior through predatory digital loan apps to the state governments
  • 02/10/2021: RBI received 1,509 complaints related to mobile applications for digital lending in 2020, of which around 1,019 were directed against unregulated and unregistered digital lending apps
  • March 11, 2021: Hyderabad Police Arrest of 27 year old in Bengaluru who was a director in 9 companies that fronted the predatory loan apps. The total number of arrests is 21 as of the date

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