The Reserve Bank of India has published guidelines for companies providing digital loans, recommending greater transparency and scrutiny to customers as the South Asian country’s central bank takes further steps to crack down on shady practices and creditors.
the guidelines, released Wednesday (PDF), say lenders should not increase a customer’s credit line without their consent and should disclose the annual loan rate in explicit terms. Digital lending apps must also obtain explicit prior consent from customers before collecting data, and all such requests must be “needs-based,” the guidelines say.
“DLAs should in any case refrain from accessing mobile phone resources such as files and media, contact list, call logs, telephony functions, etc. A one-time access can be obtained for camera, microphone, location or any other facility necessary for the purpose of boarding/KYC requirements only with the express consent of the borrower,” the guidelines added.
The guidelines, some of which have received approval in principle, were first proposed last year and track a series of sketchy credit apps and non-bank financial institutions charging exorbitant amounts from customers in India. Some of these companies have been raided by Indian authorities and found to have links with China, authorities said.
The prevalence of sketchy practices led Google to pull some personal loan apps from the Play Store in India last year and enforce stricter measures to prevent abuse.
“The Reserve Bank is mandated by law to make the country’s credit system work in its favor. In this pursuit, the Reserve Bank has encouraged innovation in the financial system, products and lending methods while ensuring their orderly growth, maintaining funding stability and protecting the interests of depositors and customers,” the central bank said in a statement.
“Recently, innovative methods of designing and delivering credit products and their services have gained prominence through the Digital Lending route. However, certain concerns have also emerged that, if not addressed, could erode public confidence in the digital lending ecosystem. The concerns primarily relate to rampant third-party involvement, mis-selling, data privacy breach, dishonest business conduct, charging exorbitant interest rates and unethical recovery practices.”
The central bank also suggested that consumers should be given the option to accept or decline consent to use specific data, as well as the ability to revoke previously granted consent and delete historically collected data.
Regulated entities should also ensure that loan service providers they partner with have appointed a nodal complaints officer to handle complaints filed against fintech startups or other digital lending companies, the guidelines add.
All loans made through digital lending apps must be reported by regulated entities to credit information companies, regardless of their nature or duration, the guidelines say.