Skip to main content

Not Dennis but Digital Lending is the real Menace


Author: Rini Mishra

Narwdeshwar Law College


Introduction 


India's emergence in the digital ecosystem has been spectacular. India's is well on the path of digital revolution. The transition to a digital economy lies in moving beyond fragmented digital solutions to digital infrastructures that will spur digitalisation across economies and societies.

While Artificial intelligence, Quantum Computing, Cloud Computing and Blockchain are making a mark. One of the new emerging digital infrastructure is that of digital lending applications which can be added to the buzzwords.

What is digital lending?

Digital lending is the process of lending credit to individuals through web platforms or mobile apps, utilizing technology for authentication and credit evaluation. Over the years the digital lending market has evolved and expanded continuously and significantly. More than 190 million Indian adults don't have any bank accounts. Digital lending enables potential borrowers to apply for loan products from any internet capable device from any worldwide locations.


Why the need of digital lending? The future and scope of digital lending

Digital lending with it's services like video-KYC (Know your Customer),  Adhaar based KYC and website applications with pioneering functionalities make the loan application procedures more efficient and less cumbersome over traditional or conventional lending procedures. The ever-increasing use of Artificial Intelligence, Machine Learning and data analytics for collection and evaluation of creditworthiness  of an applicant makes it even better as it is quicker and efficient.

The growth of the digital lending industry had been catalysed by Covid-19 as the demand for contact-less services and transactions increased tremendously ,thereby pushing more and more lenders towards adopting technologies that are seamless and provide maximum convenience to customers. This in turn will further the cause of much required financial inclusion as lenders can reach out and extend credit to a great number of individuals. 

A handy walk over the trends in digital lending ecosystem.


Unauthorised lending applications

To be able to lend, a lending company has to be registered either as a bank or an NBFC (Non-Banking Financial Company) with RBI (Reserve Bank of India). Any company or entity  not registered under the prevailing law and engaging in  providing credit services to individuals is unauthorised and fraudulent.

A one-click search on Play Store will reveal the names of many applications that promise credit within the same day you submit a KYC form. Almost 200 apps have been removed from Google Play Store especially the ones targeting the low income individuals or groups , lending small amounts between ₹ 2000 to ₹10,000. Despite that, these applications are on the rise. These are allegedly Chinese promoted mobile applications tieing up with the local NBFCs in order to expand business and book huge profits by means of exploitation.


The modus operandi and the menace

The modus operandi (the particular way or method of doing something) of these lending applications is such that they target vulnerable borrowers in need of wherewithal. However this comes at a cost of huge interest rates, and compromised privacy to the extent that the moment an individual accepts the terms and conditions,they have complete access to the customer's personal information including entire contact lists, photos , videos etc. The moment, you give in the details such as Aadhar, PAN, adress etc you will see your account credited with the cash. Sometimes these loans are sanctioned even without the required documents. 

As the proverb goes " if something is too good to be true,then probably it isn't". Customers within days of getting loan are then harassed and abused by the agents of such companies through extortion, or by sending indecent, obscene messages ,forged pictures etc even threatening to send these to their relatives and other people in their contact list.

Nearly 7800 cases have been filed against companies, NBFCs ,corporations etc related to digital lending frauds and the harassment by the recovery agents in the last one year. In 2021 atleast six people committed suicide due to the  harassment by recovery agents ,these agents even go down to the level of framing their victims in fake scenarios and leveling fake accusations against them,thereby defaming them in the society among their near and dear ones in order to usurp money.


The role of existing law 

  • A Banking company has been defined in clause (c) of section 5 of the Banking Regulation Act, 1949.
  • Section 6 of the BRA defines the standards and scope of business, of a lending company i.e; NBFC or a bank.
  • Consumer Protection Act, 2019: Section 2(47) defines 'Unfair Trade Practices' including practice of disclosing personal information of the consumer to any person, not in accordance with the law.
  • Section 17 of the same Act provides that a complaint regarding unfair trade practice, violation of consumer rights or misleading and false advertisements can be filed in electronic mode also to the District Collector, the Regional Office Commissioner or the Central Authority.
  • The Companies Act,2013 : Chapter II of the Act defines and explains the incorporation of a company.

Although the existing laws can be utilised in dealing with such cases , but the manner in which the digital lending infrastructure is expanding, there needs to be a centralised, regulatory framework which targets the current situation and acts as a helping hand to the already affected entities thereby bringing under radar any unchecked, illegal activity happening in the garb of lending or providing direct credit to accounts sans third party.


The latest RBI guidelines


These Norms follow the recommendations of the Working Groups Committee on digital lending which was constituted by RBI.

  • All digital loans must be disbursed and repaid through bank accounts of Regulated Entities (REs) only without pass-through of Lending Service Providers (LSP)or other third parties.
  • All charges payable to the loan service provider for will have to be paid by banks and non-banks and not by the borrower.
  • A standardized key fact statement (KSF) including the All-inclusive cost of digital loans in the form of Annual Percentage Rate (APR) must be provided to the borrower before the execution of the loan contract.
  • Automatic increases in credit line without explicit consent of borrower has been prohibited.
  • All digital lending products extended by REs involving short term credit, deferred payments must also be reported to credit bureaus.


Conclusion

On many different occasions RBI has warned and highlighted against the risks being posed to the financial system including fintech and digital ecosystem. With the ever expanding digital infrastructure and related technologies, it has become paramount for the users and consumers of these products and services to practice prudence especially if the activity revolves around personal information or privacy.Awareness of Rights is also equally important in case one is scammed or defrauded.

References

    • Excerpts of Economics Times , The Indian Express.
    • The Companies Act ,2013
    • Consumer Protection Act,2019
    • Banking Regulation Act,1949

Comments

  1. Mahesh BaneJuly 25, 2023 at 3:18 AM

    In India most of the people prefer Loan App because it is easy to use and loan is approved instantly in app. And this digital change helps people.to learn more about new technique..

    ReplyDelete

Post a Comment

Share your views

Popular posts from this blog

Registration of LLP and Laws

  Name – Shweta Pandit College - National Law School Of India University, Bangalore. Introduction- LLP(Limited Liability Partnership) is a limited liability company, you will find the characteristics of both a corporation and a partnership in this form of a company. LLP came into effect in 2008 when the Limited Liability Partnership Act was passed in India..  LLP- Limited Liability Partnership, is a partnership where partners have limited liability and are responsible only for the loss/damage created by themselves and not by any of their partner or partners. Partners in LLP have a fair share of say in the workings of the business.  Registration of LLP- It is a long process to register a LLP, the few steps involved in the process are discussed as follows: First step is to get the DSC, which is a Digital Signature Certificate from the government agencies such as E-Mudra, NSDL, IDRBT Certifying Authority, National Informatics Center, CDAC and each agency has its own costs of providing ser
15 comments
Read more

Attestation , Revocation, Alteration and Revival of Wills

  Author: Amit Sheoran, Symbiosis Law School, Nagpur People were worried about their lives after the corona pandemic. Because in Corona, no one was aware that anything could happen at any time. That is why they start thinking that if they die, then what will happen with their property and, as a result, they start making plans. A question arises in our mind after hearing the word will. What is will? It is defined under 2(h) of the Indian Succession Act, 1925. A will is a testamentary document by which a person bequeaths his property in the name of any other person. It will be effective after the death of the testator. The property will devolve on the person in whose favour it is bequeathed after the death of the testator. A will can be changed, revoked, or altered at any point of time after it is made. A will can be written more than once.All wills are revocable at any time during the life of the person and are confidential documents. A will can be attested, revoked, altered, and also r
11 comments
Read more

Indian Depository Receipts: Requisites and Benefits

  Yash Miniyar Maharashtra National Law University, Aurangabad A. INTRODUCTION Depository Receipts are a form of transferable instruments, which aid in the flow of general trade in a stock exchange at a given time. They are classified as financial securities in the form of equity that are issued by listed companies. The depository receipt is a form of certificate which denotes the valid holding of the security or shares of a given company. One of the most recognised and busiest forms of depository receipts in the world is the American Depository Receipts, which allows in trading of shares or securities of foreign companies. These receipts act as a form of investment for potential investors in order to diversify their assets and hold shares of their desired companies. This not only allows the economic diversification but also the geographic diversification. These depositories act as mediums to curb the hindrances or the obstacles which prevented people from making foreign investments,
Post a Comment
Read more