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The government is currently contemplating the implementation of legislation to prohibit digital lending by unauthorized entities. This initiative is driven by the goal of curbing the proliferation of illegal online lending platforms, ultimately safeguarding individuals from borrowing money through these channels. The ease of access to such platforms, coupled with numerous instances of unethical recovery practices, has tragically resulted in cases of suicides.
In light of these concerns, the government is actively considering measures to effectively ban unregulated digital lending activities. This move is part of broader efforts to protect citizens from the risks associated with unscrupulous lending practices in the digital space.
Digital lending is a method that uses digital platforms for "customers customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer services."
These upcoming regulations will be applicable to "commercial banks, primary urban co-operative banks, state co-operative banks, district central co-operative banks, non-banking financial companies (NBFCs), housing finance companies (HFCs) and all lending operations outsourced by these regulated entities to any fintech firm."
As reported by Hindustan Times, an official with knowledge of the matter has stated that the move to implement legislation prohibiting digital lending by unauthorized entities is prompted by instances of harassment and suicide linked to unregulated lending apps. Additionally, officials cited past cases, highlighting that these apps often have connections with China. A recent incident reported by HT involved the arrest of two individuals from Assam who were linked to a case where an individual's suicide was connected to an online loan probe.
An official told the publication, "The government also asked multinational hosts of app stores to remove such personal loan apps that target Indians without being registered with the central bank or with the government. As a result, number of lending apps at Google Playstore has been reduced from about 3,000 to approximately 300 now.”
While the Reserve Bank of India (RBI) has established specific regulations governing direct credit to the borrower's bank account and the payment of service charges to third-party lending service providers (LPS), the absence of similar norms for unregulated digital lending apps has adverse effects on consumers. The lack of regulatory oversight in this sector can lead to potential exploitation and harm to borrowers, emphasizing the need for comprehensive guidelines to protect consumers in the digital lending space.