First Set Of Guidelines For Digital Lending : RBI
The Reserve Bank of India (RBI) issued the first set of guidelines for digital lending, to crack down on illegal activities by certain players.
- Towards addressing concerns that had sprung up, the RBI had constituted a Working Group on ‘digital lending including lending through online platforms and mobile apps’ (WGDL) in January, 2021.
- The group has proposed stricter norms for digital lenders in November 2021, some of which have been accepted and included in the new norms while others are under examination.
- It consists of lending through web platforms or mobile apps, by taking advantage of technology for authentication and credit assessment.
- Banks have launched their own independent digital lending platforms to tap into the digital lending market by leveraging existing capabilities in traditional lending.
Highlights of the Guidelines:
- All loan disbursals and repayments will be required to be executed only between the bank accounts of the borrower and the Regulated Entities (RE) without any pass-through or pool account of the Lending Service Providers (LSP) or any third party.
- Regulated Entities include a bank or a non-banking financial company.
- The new rules mandate that fees or charges payable to LSPs in the credit intermediation process will be paid directly by the bank or Non-Banking Financial Companies (NBFCs) and not by the borrower.
- All-inclusive cost of digital loans in the form of Annual Percentage Rate (APR) is required to be disclosed to the borrowers.
- The new norm prohibits any automatic increase in credit limit without the explicit consent of the borrower.
- It also provides, as part of the loan contract, a cooling-off/ look-up period during which the borrowers can exit digital loans by paying the principal and the proportionate annual percentage rate without any penalty.
- To protect data privacy, the data collected by digital lending apps has to be need-based, with the customer’s prior consent, and can be audited, if required.
- Banks will have to ensure that they, and the LSPs engaged by them, must have a suitable nodal grievance redressal officer to deal with fintech- or digital lending-related complaints.
- This officer will also deal with complaints against their respective Digital Lending Apps (DLAs).
- Current guidelines allow for the borrower to complain to the Integrated Ombudsman Scheme of the RBI if their grievance was not resolved by the bank within 30 days.
- REs are required to ensure that any lending done through DLAs has to be reported to Credit Information Companies (CICs), irrespective of its nature or tenor.
- More importantly, lending through the Buy Now Pay Later (BNPL) model also needs to be reported to CICs.