REGULATIONS FOR DIGITAL LENDING TO ENCOURAGE TRANSPARENCY AND CUSTOMER CONTROL

The Reserve Bank of India (RBI) has issued regulations that will guide digital lending firms in their line of business. These regulations are targeted at giving customers more control and offering transparency in transactions, helping them to track down wrongs.

In a media release, RBI says it has put together a working group to help support orderly growth of credit delivery through digital lending methods while mitigating the regulatory concerns, which have been firmed up. These guidelines go from data collection to eligibility for borrowing among others.

“All loan disbursals and repayments are required to be executed only between the bank accounts of the borrower and the RE without any pass-through/ pool account of the LSP or any third party. Any fees, charges, etc., payable to LSPs in the credit intermediation process shall be paid directly by RE and not by the borrower.”, some excerpts of the regulation stated.

These regulations also stated that any form of data collected by DLAs must be on the basis of need. It must also have “clear audit trails” and should be consented to by the borrower.

These regulations come at the back of expensive charges by money lending apps and non-banking financial institutions from customers in India. Authorities say they have raided and arrested individuals in these agencies, reported to be linked to China.

“…the Reserve Bank has encouraged innovation in the financial system, products, and credit delivery methods while ensuring their orderly growth, preserving financing stability, and ensuring the protection of depositors’ and customers’ interest.

“Recently, innovative methods of designing and delivery of credit products and their servicing through Digital Lending route have acquired prominence. However, certain concerns have also emerged which, if not mitigated, may erode the confidence of members of public in the digital lending ecosystem. The concerns primarily relate to unbridled engagement of third parties, mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, and unethical recovery practices.”