RBI tightens scrutiny over digital lending apps

Cracking down on the increasing number of frauds and unlawful activities, the Reserve Bank of India on Wednesday released detailed guidelines that will increase scrutiny and supervision over digital lending apps and lenders who engage with them.

Based on the inputs received from the Working Group on 'digital lending including lending through online platforms and mobile apps' (WGDL), the central bank has firmed up a regulatory framework to support orderly growth of credit delivery through digital lending.

- All loan disbursals and repayments have to be executed only between the bank accounts of the borrower and the regulated entity without any pass-through or pool account of the lending service provider (LSP) or any third party, the RBI state.

- Any fees, charges, etc, payable to LSPs in the credit intermediation process shall be paid directly by RE and not by the borrower.

- A standardized Key Fact Statement (KFS) must be provided to the borrower before executing the loan contract.

- All-inclusive cost of digital loans in the form of Annual Percentage Rate (APR)6 is required to be disclosed to the borrowers. APR shall also form part of KFS.

- Automatic increase in credit limit without explicit consent of borrower is prohibited.

- A cooling-off/ look-up period during which the borrowers can exit digital loans by paying the principal and the proportionate APR without any penalty shall be provided as part of the loan contract.

- REs shall ensure that they and the LSPs engaged by them shall have a suitable nodal grievance redressal officer to deal with FinTech/ digital lending related complaints. Such grievance redressal officer shall also deal with complaints against their respective DLAs. The details of the Grievance redressal officer shall be prominently indicated on the website of the RE, its LSPs and on DLAs, as applicable.

- As per extant RBI guidelines, if any complaint lodged by the borrower is not resolved by the RE within the stipulated period (currently 30 days), he/she can lodge a complaint under the Reserve Bank – Integrated Ombudsman Scheme (RB-IOS).

- Data collected by DLAs should be need based, should have clear audit trails and should be only done with prior explicit consent of the borrower.

- Option may be provided for borrowers to accept or deny consent for use of specific data, including option to revoke previously granted consent, besides option to delete the data collected from borrowers by the DLAs/ LSPs.

- Any lending sourced through DLAs (either of the RE or of the LSP engaged by RE) is required to be reported to Credit Information Companies (CICs) by REs irrespective of its nature or tenor.

- All new digital lending products extended by REs over merchant platforms involving short term credit or deferred payments are required to be reported to CICs by the REs.

Speaking on RBI's new move, Ankit Mehra, CEO and Co-founder of GyanDhan, said, "The RBI has done a great balancing act of taking the initial steps in safeguarding the end consumer without stifling growth in the fintech sector. RBI has not invalidated the FLDG model for now which will be a relief to a lot of BNPL players in particular. This first set of guidelines can be summarised as a step in the direction of responsible lending."

The RBI had in January last year set up a working group to study issues regarding digital lending and suggest regulations.

RBI Governor Shaktikanta Das last month said digital lending players should only carry out activities for which they have licenses and violations are not acceptable.

In June, the RBI had asked non-bank Prepaid Payment Instrument (PPI) issuers not to load their wallets and cards from credit lines or preset borrowing limits.

"The (digital lending) firms should operate under the licenses granted to them. If they are doing anything beyond that then they should seek our permission.

"Without permission if they are engaging in activities for which they have no license then it is not acceptable. This is going beyond the licensing requirement and there will be a risk build up which we cannot allow," Das had said at an event organised by Bank of Baroda.