RBI announces first set of norms for digital lending


New Delhi: To combat the growing number of frauds and illegal activities, the Reserve Bank of India published regulations on digital lending on August 10.

The regulator said it must be a pass-through or pool account with the LSP or any other party, and all loan advances and repayments can only take place between the bank accounts of the borrower and the regulated entity.

Any costs or fees incurred by LSPs related to the loan brokerage process must be paid by the regulated entity, not the borrower.

The RBI set up a working committee in January 2021 to investigate digital lending issues and recommend restrictions. In November, the task force called for tougher standards for digital lenders, including subjecting applications to a vetting process by a nodal agency to be developed after consultation with stakeholders. He also proposed a self-regulatory organization for the players in the online lending ecosystem.

According to the RBI’s announcement on August 10, some of the regulations have been approved by the RBI, but others have been approved only in theory.

Given the technological difficulties, the establishment of institutional processes, and legislative interventions, some solutions, according to the regulator, require greater interaction with the government and other stakeholders.

Digital lenders fall into three categories. The first category includes companies that are regulated by the RBI and licensed to carry out lending operations. Secondly, those organizations that are eligible for credit based on other statutory or regulatory provisions, but are not subject to RBI regulation. The third category includes credit organizations that are not subject to any law or regulation.

RBI has stipulated that a standardized Key Facts Statement (KFS) must be provided to the borrower before any loan agreement is executed, among other accepted standards. According to the RBI, organizations will also have to disclose the total cost of digital loans in the form of an annual percentage rate or APR, which will be included in the KFS.

According to the regulations, any automatic increase of the credit limit without the express permission of the borrower is prohibited. The loan agreement must include a review or consideration period during which borrowers can cancel their digital loans without paying a fee by paying the principal and the corresponding APR.

Regulated entities should ensure that they and the LSPs they engage have an appropriate nodal grievance redressal to deal with consumer complaints related to fintech or digital lending. Additionally, this officer handles complaints related to the aforementioned digital rental mobile apps. According to the regulator, the officer’s information must be displayed prominently on the regulated website and on all relevant LSPs and digital rental applications (DLAs).

Other key recommendations adopted by the RBI are:
Borrowers can submit complaints to the Reserve Bank-Integrated Ombudsman System if their complaints are not resolved by the regulated organization within the specified 30-day deadline.

Data collected by DLAs must be necessary, have clear audit trails, and can only be used with the express prior consent of the borrower.

Borrowers can choose to accept or decline their consent to the use of certain data and have the option to withdraw previously given consent, in addition to the ability for DLAs/LSPs to delete their data.

All new digital credit products with short-term loans or deferred payments offered by regulated firms using merchant platforms must be disclosed to credit reporting companies.

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