Thursday, Jul 07, 2022

RBI ‘Illegal Loan Apps’ Ban: What’s The Way Out For Customers?

With RBI declaring 600 digital loan apps illegal recently, customers will get access to better data security and genuine loan apps. More than 200 apps have already been removed from the Google Play store.

A recent report by the Reserve Bank of India (RBI) says that India, with its vision of becoming a cash-light economy and with a growing demand for financial inclusiveness, has the maximum number of digital loan apps in the world. This also means that a lot of people would be affected by the RBI action to mark 600 digital lending apps (DLAs) available on different app stores in India as “illegal loan apps”.

The RBI report of the working group on ‘Digital Lending, Including Lending Through Online Platforms And Mobile Apps’ marked these loan apps illegal and said that the central bank will also soon come up with digital lending norms to curb financial frauds related to apps.

The working group was set up in the backdrop of business conduct and customer protection concerns arising out of the spurt in digital lending activities. More than 200 apps have already been removed from the Google Play store due to policy violation or due to other legal issues.

Read on to know what’s the way out for the customers of the loan apps that have either been removed or might get banned after RBI comes up with the new digital lending norms.

Way Out For Customers

Existing customers, who are registered with lending apps, need not worry even if the apps is no longer allowed to operate in India.

“Since most of the loans are short term in nature, they are going to be recovered before the operations stop,” says Mahesh Shukla, founder and CEO, PayMe India, an RBI registered non-banking financial company (NBFC).

In case there is an issue related to debt collectors that may arise after an app gets banned, then the customer can directly approach the NBFC that has disbursed the loan through the app. In case of most apps, there is an NBFC that disburses the loan.

“Loans can be paid back directly to the NBFC. Even after that, if any borrower faces any issues, they can write their concern to the financial official appointed by RBI,” adds Shukla. The report suggests that there will be a nodal agency to deal with the issues regarding these apps soon.

Moreover, the main purpose of these norms is to ensure better security and online financial safety for the customers. “These suggestions are made to protect the retail customers from some of these illegal or unregulated apps. Hence, we are confident that customers will be provided the required options for servicing their loans, in spite of illegal lending apps getting banned,” says Vivek Kumar Sinha, chief marketing officer, Home Credit India, a non-deposit taking NBFC registered with RBI. 

Better Security For Customers

The report suggests that there will be a separate legislation to prevent illegal digital lending activities. Experts also believe that upcoming lending norms will empower customers to take a loan from a dependable firm or platform. “Once there is a nodal agency, the apps need to get through the nodal agency, set up by RBI, before they are registered on Playstore. Then, fraudulent and malicious apps can’t be there on Playstore and get customer data.  Currently, the industry is on self-regulation mode,” says Sinha.

There will be certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions. Disbursement of loans will happen directly into the bank accounts of borrowers.

Also, disbursement and servicing of loans will happen only through bank accounts of digital lenders. Moreover, the apps can collect data with prior and explicit consent of the borrowers with verifiable audit trails and would require storing data in servers located in India.

“These norms will definitely prevent our customers from falling prey to fraudulent lenders. But, at the time of looking for a loan, while the cash need may be urgent, borrowers should spend a few minutes to identify if the app that promises immediate cash is a registered lender or if it’s an unauthorized company doing illegal business,” says Shukla.