To restore every individual’s confidence in the digital lending ecosystem, the Reserve Bank of India (RBI) has released a set of guidelines for digital lenders. Before discussing about the guidelines, let us look at the list of digital lenders diversified into three categories by the RBI:
- Entities that are regulated by the RBI and are permitted to carry out the lending process.
- Entities that are authorised to carry out the lending process as per certain statutory/regulatory provisions, which are not regulated by the RBI.
- Entities that are lending beyond the purview of any statutory and regulatory provisions.
Digital lenders have become prominent, but certain concerns have also emerged, for which the RBI has stated that “ if these concerns are not answered, then this can erode the confidence of the public depending on the digital lending ecosystem.” Therefore, a set of guidelines are put forth by the Central Bank as discussed below:
- Loan disbursals are now executed only between you (bank account borrowers) and the regulated financial institutions like banks, non-banking finance companies (NBFCs), and other microfinance institutions without any third-party interference.
- Any type of fees payable to the lending service provider has to be paid by the regulated entity and not by you (borrower).
Additional transparency and disclosure points put forth by the RBI to the borrowers, in the process of signing a loan are:
- A ‘key fact statement’ should be standardised and provided to you (borrower), before your loan contract is executed.
- All costs concerning the loan must be disclosed to you (borrower), such as:
- Interest rates
- Origination charges
- Discount points
- Agency fees
- Annual percentage rate (APR)
- The credit limit can only be increased only with direct consent from you (borrower). Currently, any automatic increase in the credit limit is prohibited.
RBI urges the loan lending platforms to provide a look-up or cooling-off period to you (borrowers), so that you can exit the loan by paying off the principal sum along with the proportionate APR, without any penalties, before the term period ends. So that you won’t have to pay any exit penalties.
The digital lending guidelines were proclaimed by the RBI’s Working Group on Digital Lending (WGDL), constituted in Jan 2021, to understand the issues related to online lending. The new notifications emphasise more on redressal mechanisms for consumers as well:
- Any regulated entities or lending service providers should engage a model grievance redressal officer to help deal with complaints that are related to digital/fintech lending. These details are to be clearly indicated on the websites of the regulated entities, other lending service providers, and in the digital lending applications as well.
- If your (borrower) complaint is not resolved within 30 days, then you can complain to the Reserve Bank – Integrated Ombudsman Scheme.
- For any information related to the tech and data usage, the RBI has said that the lending applications should collect data from the borrowers, only after their consent.
- You (borrower) may be provided with an option to either accept or deny the consent for use of certain specific data and also an option to cancel any previously granted consent.