New Regulations Regarding Digital Lending
- Transparency: Lending must be done by organizations that are either under RBI regulation or have been granted a license to operate by relevant law.
- Loan payments and disbursements: The RBI has stipulated that all loan payments and repayments must be made directly between the entityâs and the borrowerâs bank accounts.
- Important information: Before the contractâs execution, lenders would have to provide the borrower with standardized information on all fees, levies, and the annual percentage rate(APR).
- Annual rate: It alludes to the annual percentage rate that is charged for taking out a loan, which includes processing costs, fines, and all other fees related to it. Borrowers would find it simpler to compare their offerings to those of market rivals.
- Give borrowers a KFS: Before signing the loan contract, all digital lending organizations must give borrowers a KFS or Key Fact Statement.
- Unable to increase credit limit: Customersâ credit limits cannot be increased by LSPs without permission.
- Office of the Grievance Redresser: Entities would need to establish a grievance redressal officer to fulfill the need for a specialized resolution system. Borrowers may file a complaint with the RBIâs Integrated Ombudsman Scheme if the bank does not resolve their complaint within 30 days.
- Cooling-off time: Digital lenders must now offer a cooling-off period so that borrowers have the choice to pay back the principal sum and associated APR without incurring penalties. This cooling-off period must be expressly stated in the loan contract.
- Consent for data collection: Lending institutions may only gather data as needed. Additionally, there should be audit trails and prior, informed agreement from the borrower.
- Resolution of complaints: REs are required to resolve consumer complaints within 30 days or within a predetermined time frame. If there is no settlement within the allotted time, the borrower may file a complaint with the RE.
- RB-IOS: Integrated Ombudsman Scheme (RB-IOS) of the RBI, should the complaint not be handled within 30 days of receipt, will also be responsible for the ecosystem.
- Data regulation: All information gathered by the applications must be âneed-basedâ with the borrowerâs express prior approval. The option to revoke previously granted permission is available to users. During enrollment, the privacy policy must specify the data gathered. According to RBI, user approval is required before sharing personal data with a third party.
- Disclosure of Loans: Regardless of the type or duration of the lending, REs must make sure that DLA lending is reported to Credit Information Companies (CICs). More crucially, CICs must be informed about lending that uses the Buy Now Pay Later (BNPL) paradigm.
Digital Lending and its Regulation
A remote and automated lending procedure known as âdigital lendingâ makes extensive use of seamless digital technology for customer acquisition, the credit assessment, loan approval, payout, recovery, and related customer care. The Reserve Bank of India (RBI) established a framework to control online lending. It is disbursing and collecting loans via websites or mobile apps. It facilitates fast disbursal and lowers costs. However, these platforms frequently engage in risky behavior by lending to borrowers who cannot repay the money. The Reserve Bank of India (RBI) recently established a framework governing the nationâs digital lending market. The RBI launched a working group on digital lending, including online platforms and mobile apps, in January 2021. The panel was established as a result of worries about ethical business practices and customer protection that have emerged as a result of the boom in digital lending activity. Digital lending is one of the fintech industries in India. It has grown significantly from a volume of US$ 9 billion in 2012 to almost US$ 110 billion in 2019.
Furthermore, it is anticipated that by 2023, the digital lending market will have grown to about US$350 billion. Small borrowers without a history of credit history who conventional financial institutions donât cater to, are among its clients in particular. Short-term loans, especially those with terms of fewer than 30 days, are their primary area of expertise. Commercial banks are quickly integrating into the category of financial intermediaries by either partnering with NBFCs to create synergies or by lending digitally.
To crack down on illicit activity by some participants, the Reserve Bank of India (RBI) has announced the first set of guidelines for digital lending. The RBI created a Working Group on âDigital Lending (WGDL), including Lending through Online Platforms and Mobile Apps to address the issues.â In November 2021, the group suggested more substantial standards for digital lenders; some of these standards have been adopted and are now part of the new standards, while others are still being looked at.
Contact Us