The Reserve Bank of India (RBI) on Wednesday said the first set of norms to regulate digital lending and to orderly growth of credit through digital lending and to crack down on the growing number of online frauds and unlawful activites.
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 (LSP) or any third party, as per the new norm.
The RBI said “This regulatory framework is based on the principle that lending business can be carried out only by entities that are either regulated by the Reserve Bank or entities permitted to do so under any other law.”
The digital lending ecosystem of RBI’s Regulated Entities (REs) and the Lending Service Providers (LSPs) engaged by them to extend various permissible credit facilitation services as the Reserve Bank’s regulatory framework is focused on.
The universe of digital lenders is classified into three groups as said by RBI are:
• Entities regulated by the RBI and permitted to carry out lending business;
• Entities authorized to carry out lending as per other statutory/regulatory provisions but not regulated by RBI;
• Entities lending outside the purview of any statutory/ regulatory provisions.
The main framework is based on the data or the inputs received from the RBI-constituted Working Group on ‘digital lending including lending through online platforms and mobile apps’ (WGDL).
According to the new rules, all loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the regulated entity (RE) without any pass-through/ pool account of the LSP (lending service provider) or any third party. “Any fees, charges, etc, payable to lending service provider in the credit intermediation process shall be paid directly by RE and not by the borrower.”
The Customer Protection and Conduct Issues by RBI are:
• All loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the RE without any pass-through/ pool account of the LSP or any third party.
• Any fees, charges, etc., payable to LSPs (lending service provider) in the credit intermediation process shall be paid directly by RE(regulated entity) and not by the borrower.
• A standardized Key Fact Statement (KFS) must be provided to the borrower before executing the loan contract.
• All-inclusive cost of digital loans in the form of Annual Percentage Rate (APR)6 is required to be disclosed to the borrowers. APR shall also form part of KFS.
• Automatic increase in credit limit without explicit consent of borrower is prohibited.
• A cooling-off/ look-up period during which the borrowers can exit digital loans by paying the principal and the proportionate APR without any penalty shall be provided as part of the loan contract.
• REs shall ensure that they and the LSPs engaged by them shall have a suitable nodal grievance redressal officer to deal with FinTech/ digital lending related complaints. Such grievance redressal officer shall also deal with complaints against their respective DLAs. The details of the Grievance redressal officer shall be prominently indicated on the website of the RE, its LSPs and on DLAs, as applicable.
• In accordance with extant RBI guidelines, “if any complaint lodged by the borrower is not resolved by the RE within the stipulated period (currently 30 days), he/she can lodge a complaint under the Reserve Bank – Integrated Ombudsman Scheme (RB-IOS)7.” As per RBI notification.
“Data collecting by digital lending apps (DLA) should be based, should have clear audit trails and should be only done with prior explicit consent of the borrower. Options to accept or deny consent for use of specific data may be provided for the borrowers, including option to revoke previously granted consent, besides option to delete the data collected from borrowers by the DLAs/ LSPs,” according to the RBI notification.
“Any lending sourced through DLAs (either of the RE or of the LSP engaged by RE) is required to be reported to Credit Information Companies (CICs) by REs irrespective of its nature or tenor. All new digital lending products extended by REs over merchant platforms involving short term credit or deferred payments are required to be reported to CICs by the Res,” the RBI notification said.
