RBI is set to issue an advisory cautioning lenders against using aggressive tactics to collect payments following complaints that some app-based lenders are using outright dodgy tactics to get borrowers to repay
The Reserve Bank of India (RBI) is set to issue an advisory cautioning lenders against using aggressive tactics to collect payments following complaints that some app-based lenders are using outright dodgy tactics to get borrowers to repay, a person aware of the development said.
Social media platforms have been abuzz for the past few weeks with complaints that some app-based lenders have been harassing small borrowers who have fallen behind on their payments by calling their phone contacts and texting abusive messages. While the number of such complaints has exploded on Twitter and Facebook, only a few have reached out directly to RBI’s ombudsman for digital transactions, the person cited above said on condition of anonymity.
While most complaints are against entities that are not directly regulated by RBI, the regulator hopes these companies will get the message. Many of these apps act as debt collectors and loan originators for non-bank lenders, which are regulated by RBI.
“A majority of the complainants have borrowed from entities that are not regulated by the central bank and where money is available at the click of a button. For some of these apps, there are underlying non-banking financial companies (NBFCs) regulated by RBI," the person said.
Some of these firms charge more than 30% interest for personal loans and target people who need cash to meet immediate requirements. One such firm, CashBean, is the app-based lending platform for PC Financial Services Pvt. Ltd, a non-bank financier, and charges as much as 33% for personal loans up to ₹60,000.
“Based on reports of fake letters being sent to borrowers, we did an internal investigation and found 2-3 people from the outsourced collection agency were guilty. Their contracts were terminated and an FIR was filed as well. Thereafter, we again conducted a training exercise for all collection executives to sensitize them," said Ilica Chauhan, vice-president, PC financial Services.
Experts said lenders have raised money from investors and are under pressure to recover loans during the pandemic.
“Invading the privacy, calling up contacts amounts to defamation. Having said that, there is also a lot of investor pressure on these app-based lenders and they are worried about recovery," said Sonam Chandwani, managing partner, KS Legal and Associates.
Chandwani said these firms have increased the commission they used to pay recovery agents to try and recover loans during the lockdown. “These agents are, therefore, going to any possible extent to recover loans, lured by the extra commission," she said.
Tactics of app-based lenders have come into focus as India grapples with growing stress in the banking and financial services sector. With the lockdown bringing the economy to a near halt, millions lost jobs and income, which coupled with the slowdown that preceded the pandemic, has been gnawing away at the repayment capabilities of borrowers.
Mint reported on 8 June that the recovery process has turned into a nightmare for borrowers of app-driven loans. An RBI spokesperson did not respond to an email seeking comment.
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