RBI Report on Digital Lending, Including Predatory Lending Apps

Fair and respectful treatment of borrowers

1. There is a need to develop a responsible borrowing culture in digital credit landscape as much as responsible credit. This exercise in developing positive financial behavior and attitude needs to be taken up by both industry as well as regulators and government. (Recommendation)
2. Client harassment should be defined by the ORS: The fair treatment of borrowers in financial difficulty includes the obligation for the lender to identify consumers in repayment difficulty; engage with these consumers at an early stage to identify the causes of these difficulties and provide the necessary information; help the borrower to cope with temporary financial difficulties and return to normalcy. Client harassment should be properly defined by the SRO in consultation with RBI. Disclosure of the type of debt that can be collected by LSP on behalf of an RE, who can collect that debt and how that debt can be collected, should be specified in the loan agreement with the borrower. (Recommendation)
3. Since partnering with consumer-oriented LSPs is a dominant model in digital lending:
   • REs must perform enhanced due diligence before entering into a partnership with a language service provider. The RBI is expected to incorporate appropriate provisions into the agency’s draft financial services regulations. (Recommendation)
   • REs should be required to have detailed fair collection policies in place and procedures on their website. In view of the growing importance and scope of DLAs and the resulting concerns about unethical collection practices, there is a need to standardize the code of conduct for collections that will be developed by the proposed SRO in consultation with RBI. In the event that a debt collector needs to contact a third party regarding a borrower’s debt, these provisions should be explicitly reflected in the loan agreement. REs should ensure that FSLs are prohibited from employing abusive debt collection practices, including the use of misrepresentation, practices amounting to or constituting harassment, or giving false credit information or not authorized to third parties. (Recommendation)
   • REs are required to post the names of the entities they have deployed for recovery operations on their website with adequate details. It can be mandated that the lender communicates to the borrower, at the time of the sanction of the loan, the contact details of any LSP that can approach the customer for recovery. (Recommendation)
   • The recovery agency must undergo adequate training: Recovery officers, both off-site and on-site, should be required to undergo adequate training and accreditation to discharge their responsibilities with care and sensitivity. The institutional accreditation mechanism can be developed by the whole industry in consultation with RBI. (Recommendation)
   • Lenders should conduct a periodic review of the conduct of LSPs engaged in collection and look up their name in any “negative” list or report their name to the “negative” list if there is a material violation of a code. In order to monitor the activities of questionable PSLs, a simpler mechanism should be made available for lodging complaints about ill-treatment inflicted by these entities. The “negative list” of LSPs to be maintained by the SRO must be meticulously followed for compliance. (Recommendation)
4. Formally disputed refunds must be indicated on the credit report as well as the disputed amount versus the overdue or repaid amount. Certain types of updates or inquiries to credit reporting companies regarding the borrower’s credit history by any entity should be reported to the borrower via SMS or email in order to avoid any possible misrepresentation or unsolicited investigation. Reasonable free access to the borrower for their own data should also be considered by CICs. (Recommendation)

Stakeholder comments

Gaurav Chopra, Founder and CEO, IndiaLends and Founding Member of the Digital Lending Association of India (DLAI):

“We believe that recommendations such as verifiable logs for every action a user takes on the app will be a game-changer for the Indian digital lending industry. It will demolish many existing loan sharks and crack down on unfair practices. Additionally, advising digital lenders to provide a statement of key facts in a standardized format including the annual percentage rate will give borrowers a better perspective on the high percentage rate they are willing to bear.

Ankit Rata, Co-founder and CEO, Signzy:

“Currently, the industry is seeing many unregulated digital lenders operating in the space, who haven’t even implemented basic KYC controls. We believe that if the recommendations are adopted, it will not only help protect consumers, but also limit data privacy breaches while limiting fraudulent transactions. “

Lalit Mehta, Co-Founder and CEO, Decimal Technologies:

“Digital lending innovation is crucial for the country as it has the potential to close the credit gap, especially among MSMEs and the population living in under-banked areas. Integrating consumer protection and transparency into the digital lending landscape will dramatically increase the number of people with access to formal banking services and sources of credit, thereby eliminating informal actors. Another important point to note is the report’s emphasis on fostering innovation – this can lead to growth for products that meet the specific needs of underserved people who do not always have the documentation required by them. traditional financial institutions for a loan application.