The Reserve Bank of India has cautioned consumers against unauthorised digital lending applications, following continuing reports of poor loan approval and recovery practices followed by some platforms. The second warning from the RBI in recent months prompted the Digital Lenders Association to issue a revised code of conduct, hours after the regulator’s notice.

In an advisory issued on Wednesday, the regulator said legitimate public lending activities can be undertaken by banks, non-banking financial companies registered with RBI and other entities who are regulated by state governments.

Members of public are advised to “verify the antecedents of the company/ firm offering loans online or through mobile apps”, the regulator said. The RBI said consumers should never share copies of “know your customer” documents with unidentified persons and unverified/unauthorised applications.

The RBI acknowledged reports of individuals and small businesses falling prey to growing number of unauthorised digital lending platforms. These reports refer to excessive rates of interest and additional hidden charges being demanded from borrowers; adoption of unacceptable and high-handed recovery methods; and misuse of agreements to access data on the mobile phones of the borrowers.

Should consumers face such issues, they should report such applications to law enforcement agencies or use the sachet platform, the regulator said.

This is the second warning from the central bank. In June, it had reiterated its fair practices code for all lenders and has sought additional documentation for loan contracts signed by digital lenders. The RBI had also said that outsourcing a business activity does not diminish the obligations of the bank or NBFC as the regulatory compliance rests only with them.

Digital Lenders Issue New Code Of Conduct

In response to the RBI’s cautionary message, the Digital Lenders’ Association said it has issues a revised code of conduct.

  • The code of conduct mandates that members must clearly list all costs and fees arising from the financial product or service offered. These costs must be explained via illustrations and a repayment schedule must be provided.
  • The effective annual interest rate for the loan must be clearly detailed in the documentation.
  • Lenders should ensure that there is no undue harassment or intimidation of customers, including practices such as calling (or threatening to call) any family member of the customer or any person associated with the customer.
  • Lenders must follow a consent-based architecture for data captured, along with a detailed explanation of the data being captured and used.

To be sure, this code is voluntary and the enforcement capacity is limited to asking erring members to exit the group.



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