RBI issues first set of guidelines for digital lending

The Reserve Bank of India (RBI) has released norms to regulate digital lending to crack down on the growing number of frauds and unlawful activities.

The RBI set up a working group in early 2021 to study issues regarding digital lending and suggest regulations. Later, the working group proposed stricter norms for digital lenders, including subjecting the digital lending apps to a verification process by a nodal agency to be set up in consultation with stakeholders. It also suggested a self-regulatory organisation covering the participants in the digital lending ecosystem.

All loan disbursals and repayments have to be executed only between the bank accounts of the borrower and the regulated entity without any pass-through or pool account of the lending service provider (LSPs) or any third party. Any fees or charges payable to LSPs in the credit intermediation process shall be paid directly by the regulated entity and not by the borrower.

The RBI has classified digital lenders into three categories. The first are those entities regulated by the RBI and permitted to carry out lending business. The second are the entities authorised to carry out lending as per other statutory or regulatory provisions but not regulated by the central bank. The third bunch will include those entities lending outside the purview of any statutory or regulatory provisions.

To address consumer complaints, regulated entities shall ensure that they and the LSPs engaged by them have a suitable nodal grievance redressal officer. This officer shall also deal with complaints against their digital lending mobile apps. The details of the officer are to be prominently indicated on the website of the regulated entity, its LSPs and on digital lending apps (DLA), as applicable.

Other key recommendations accepted by the RBI are:

· If a complaint lodged by the borrower is not resolved by the regulated entity within the stipulated 30 days, they can complain to the Reserve Bank – Integrated Ombudsman Scheme.

· The data collected by DLAs should be need-based, have clear audit trails and be only done with the prior explicit consent of the borrower.

· Option may be provided for borrowers to accept or deny consent for the use of specific data, including the option to revoke previously granted consent, besides an option to delete the data collected from borrowers by the DLAs or LSPs.

· All new digital lending products extended by regulated entities over merchant platforms involving short-term credit or deferred payments are required to be reported to credit information companies.