RBI tightens digital lending standards to avoid charging sky-high rates
Mumbai: The Reserve Bank on Wednesday tightened digital lending standards to prevent the charging of exorbitant interest rates by some entities and also check unethical loan collection practices.
Under the new standards, all loan disbursements and repayments must be executed only between the borrower’s bank accounts and regulated entities (such as banks and NBFCs) without any transfer/pool accounts of loan service providers (PSL).
In addition, “all fees, charges, etc., payable to LSPs in connection with the credit intermediation process shall be paid directly by RE and not by the borrower,” the Reserve Bank said in a statement. press while conveying the regulatory position.
In issuing a detailed set of guidelines for digital lending, the RBI mentioned concerns mainly related to unbridled third party engagement, mis-selling, breach of data privacy, unfair business conduct, charging exorbitant interest rates and unethical collection practices.
The RBI had constituted a working group on “digital lending, including lending through online platforms and mobile applications” (WGDL) on January 13, 2021.
He further said that the regulatory framework to support orderly growth in credit provision through digital lending methods while alleviating regulatory concerns has been firmed up.
“This regulatory framework is based on the principle that lending activities can only be carried out by entities that are either regulated by the Reserve Bank or entities authorized to do so under any other law,” he said. -he declares.
The Reserve Bank’s regulatory framework is focused on the digital lending ecosystem of RBI’s regulated entities (RE) and LSPs contracted by them to extend various authorized credit facilitation services.
He further stated that a standardized Key Fact Statement (KFS) must be provided to the borrower before the execution of the loan agreement.
This has been mandated to be tracked by REs, their LSPs, and REs’ Digital Lending Applications (DLAs), among others.
In addition, an automatic credit limit increase without the express consent of the borrower is prohibited.
“A cooling off/research period during which borrowers can exit digital loans by paying the principal and prorated APR (annual percentage rate) without any penalty should be provided as part of the loan agreement,” said added the RBI.
If a complaint filed by the Borrower is not resolved by the ER within the allotted time (currently 30 days), it may file a complaint under the Reserve Bank’s Built-in Ombudsman Scheme (RB-IOS ).
The RBI further stated that data collected by DLAs should be needs-based, have clear audit trails and only with the prior explicit consent of the borrower.
The option may be offered to borrowers to accept or deny consent to the use of specific data, including the option to revoke previously granted consent, in addition to the option to delete data collected from borrowers by the DLAs/LSPs.
RBI also said that some task force recommendations have been accepted in principle, but require further consideration.
In addition, some recommendations require broader engagement with central government and other stakeholders given the technical complexities, setting up institutional mechanisms and legislative interventions.
In accordance with the latest standards, REs will need to ensure that they and the LSPs they have engaged have an appropriate nodal grievance officer to handle complaints related to FinTech/digital lending.
“This grievance officer should also handle complaints against their respective DLAs. the case,” the RBI said.
Digital Lending Applications (DLAs) refer to mobile and web applications with a user interface that facilitate borrowing by a borrower from a digital lender.
DLAs will include ER applications as well as applications operated by LSPs that are engaged by ERs for the extension of any credit facilitation service.