Digital Loan Apps: Out of 600, MeitY Managed To Block Just 27 Illegal Apps!
Moneylife Digital Team 13 December 2021
Several media reports highlight that online or digital lending platforms are virtually an extortion racket, charging an exorbitant interest rate from naive people. It was alleged that the interest rate goes up to 500% per annum along with arbitrary upfront processing fees up to 30%. As of February 2021, there were about 600 illegal lending apps. However, the ministry of electronics and information technology (MeitY) was able to block just 27 unlawful loan lending apps. 
 
In a written reply, Dr Bhagwat Karad, minister of state for finance, informed the Lok Sabha, “As per the findings of the Reserve Bank of India (RBI)’s working group (WG) on digital lending, the number of illegal lending apps stood at approximately 600 from 1st January to 28 February 2021 and a number of these apps are available on app stores in the country.
 
“Following the due process specified in the Information Technology (Procedure and Safeguards for Blocking for Access of Information for Public) Rules, 2009 notified under section 69A of Information Technology (IT) Act, 2000, MeitY blocked 27 unlawful loan lending apps.”
 
Members of Parliament (MPs) Ramesh Chander Kaushik, Jyotirmay Singh Mahato, Vellalath Kochukrishnan Nair Sreekandan and Ravneet Singh had asked two separate questions on illegal digital lending apps. They had asked whether the government was aware that the private companies are giving loans of Rs1,000 to Rs30,000 through mobile apps in the country and interest up to 36% is being charged on the loan amount. 
 
The minister informed the MPs that significant concerns raised in the complaints filed on ‘Sachet’, a portal established by RBI, were excessive interest and charges levied by digital lending apps and harassment of customers for loan repayments. 
 
According to Dr Karad, the minister, the Sachet portal established by RBI under a state-level coordination committee mechanism for registering complaints by the public, has received about 2,562 complaints against digital lending apps from 1 January 2020 to 31 March 2021.
 
“Also, as per the findings of the RBI’s WG on digital lending, majority of the complaints pertain to lending apps promoted by entities not regulated by the RBI such as companies other than non-banking financial companies (NBFCs), unincorporated bodies and individuals. Major concerns raised in such complaints were issues of exorbitant interest and charges levied by digital lending apps, and harassment of customers for loan repayments,” the minister says. 
 
Dr Karad further says, complaints received on the Sachet portal against lending apps promoted by entities not regulated by RBI are sent to the concerned registrar of companies under the ministry of corporate affairs (MCA) registered entities and to the economic offences wing (EOW) of complainant’s state for unincorporated bodies and individuals.
 
Until 8 December 2021, RBI had granted a certificate of registration to 13 NBFCs, which intended to operate through mobile app-based or digital mode only.   
 
As reported by Moneylife, the WG of RBI had recommended separate legislation to prevent illegal digital lending activities. The WG, headed by Jayant Kumar Dash, executive director (ED) of RBI, also recommended enhancing customer protection and making the digital lending ecosystem safe and sound while encouraging innovation. 
 
According to the report, while technological innovations have led to marked improvements, there have been unintended consequences on greater reliance on third-party lending service providers, mis-selling to unsuspecting customers, concerns over data privacy breaches and unethical business conduct of illegitimate operations. 
 
“Mushrooming growth of technology companies extending and aiding financial services has made the regulatory role more challenging. The larger issue here is protecting the customers from widespread unethical practices and ensuring orderly growth,” the report says.
 
Earlier in June this year, taking cognisance of harassment suffered by customers from digital or app-based lending platforms, RBI had warned banks and NBFCs that as lenders, they could not diminish their obligations, as the onus of compliance with regulatory instructions rests solely with them.
 
According to RBI, there have been reports about individuals and small businesses falling prey to a growing number of unauthorised digital lending platforms and mobile apps on promises of getting loans in a quick and hassle-free manner. These reports also refer to excessive interest rates 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 borrowers’ mobile phones. (Read: Digital or App-based Lending: RBI Says Banks and NBFCs Cannot Diminish Regulatory Obligations for Loans and Recovery)
 
Legitimate public lending activities can be undertaken by banks and NBFCs registered with RBI and other entities, which are regulated by the state governments under statutory provisions, such as the money lending legislation of the concerned states. 
 
RBI says it has also mandated that digital lending platforms, which are used on behalf of banks and NBFCs, disclose the banks' names or NBFCs upfront to the customers.
 
Names and addresses of the NBFCs registered with RBI can be accessed from this link, and the portal for filing complaints against the entities regulated by RBI can be accessed through https://cms.rbi.org.in, the central bank says.
 
RBI also referred to an article in The Federal, which was re-published by Moneylife which reported that thousands of customers had fallen prey to such lending platforms which are misusing data, overcharging customers and taking advantage of digital illiteracy. 
 
The article says barring a few, most such lending companies charge a high interest and processing fee on short-term loans (seven days to one month). Their interest rates vary from 25%-40%, while the processing fee ranges from 15% to 20%. In addition, GST at 18% is levied on the processing fee.
 
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