Digital Lending: Delhi HC Issues Notice to Union Govt, RBI on a PIL Seeking Regulation
Moneylife Digital Team 15 January 2021
The Delhi High Court on Friday issued notices to the Reserve Bank of India (RBI) and the Central government asking for their stand on a writ petition seeking regulation and control of digital lending platforms operating through mobile apps. 
 
A bench of chief justice DN Patel and justice Jyoti Singh sought the response to the petition by 19 February 2021. The petition refers to a circular dated 23 December 2020 issued by the RBI and highlights the charging of exorbitant interest by these lenders on loans and seeks the fixing of a maximum rate of interest chargeable by these lenders as a solution. 
 
The petition has pointed that borrowers are being harassed and humiliated by the lenders in case of default. In addition, the petition also sought the setting up of a grievance redressal mechanism for borrowers in every state.
 
Moneylife has been covering this issue of these illegal instant loan apps extensively.
 
Prashant Bhushan, counsel for the petitioner Dharanidhar Karimojji,   told the HC that these entities are a menace and even the RBI has issued a circular last month cautioning the general public about these platforms.
 
The petition states, "As of today, there are around 300 instant personal loan apps", which "give loans ranging from Rs1,500 to Rs30,000 for about seven to 15 days tenure. They deduct almost 35% to 45% of loan money as platform fees, service charges and processing fees and transfer remaining money to the borrower's bank accounts."
 
The petitioner tried to avail a loan from different online mobile apps. In the first case the petitioner tried to take loan of Rs17,000 for seven days from Cashsuper App (cashtrain). He realised that “the lender is charging Rs1,190 as interest for seven days, processing fees of Rs4,250 and goods and services tax (GST) of Rs765. The borrower will ultimately receive Rs11,985 in hand. The repayment amount would be Rs18,190. That is total cost for obtaining the loan of Rs17,000 for seven days tenure is Rs6,205 or 36.50%, which would translate into 19 times of the cost for a year.” 
 
Similarly, the petition has included the details for three other different apps. 
 
The petition adds that “if a person fails to pay the loan amount in seven days or in the specified loan period, the collection agent calls to persons in the contacts list from the user’s phone, the data collected while applying for the loan. In the app-driven micro lending segment, the process of recovery has now turned into a nightmare for many borrowers. Unfortunately, while installing the app, borrowers must give their consent to the app company to access their contacts, which some aggressive lenders are now tapping to publicly humiliate borrowers. This is breach of privacy of borrowers.” 
 
All media stories of the harassment have been included in the plea.
 
The petition states that “...most of the states have money lenders act and there is maximum interest rate fixed for lending money to borrowers. But no effective control is being followed as the action will be initiated only on the complaint of borrowers. Some of the online loan companies are functioning as non-banking financial companies (NBFCs) regulated by RBI. But it seems that RBI is not controlling the exorbitant interest rate and other charges being imposed by these companies and not restraining them from harassing the borrowers”.
 
In its December circular, RBI had cautioned that "There have been reports about individuals, small businesses falling prey to growing number of unauthorised digital lending platforms and mobile apps on promises of getting loans in quick and hassle-free manner. These reports also 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…. Members of public are hereby cautioned not to fall prey to such unscrupulous activities and verify the antecedents of the company or firm offering loans online or through mobile apps.”
Comments
maheshsbhatt
1 year ago
Engineered Corruption manipulation systemic abuse Marwari Pathani interests ? Kabir & Elon Musk says mangna marn saman To borrow is like death Mahesh Bhatt
saurabhmukh
1 year ago
This situation will turn out to be like "pay day" loans of the US. India will turn from a savings based economy to a credit based economy and it will be nightmare. Please step in and stop these digital unregulated lenderas
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