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Loan by Apps: RBI Releases Regulatory Norms; Digital Lending Firms Divided Into 3 Categories

RBI’s Digital Lending Regulatory Framework: The Reserve Bank of India (RBI) on Wednesday said a regulatory framework to support orderly growth of credit delivery through digital lending methods while mitigating the regulatory concerns has been firmed up, after taking into account the inputs received from a diverse set of stakeholders.

“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 RBI said in a notification.

It added that the universe of digital lenders is classified into three groups – i) entities regulated by the RBI and permitted to carry out lending business; ii) entities authorised to carry out lending as per other statutory/regulatory provisions but not regulated by RBI; iii) entities lending outside the purview of any statutory/ regulatory provisions.

The framework is based on 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 proviser) 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 rules also prohibit the automatic increase in credit limit without explicit consent of borrowers, according to the RBI notification.

According to the norms, a standardised 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) is required to be disclosed to the borrowers and APR will also form part of KFS.

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 will be provided as part of the loan contract.

REs will 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 will also deal with complaints against their respective DLAs (digital lending apps). The details of the grievance redressal officer will be prominently indicated on the website of the RE, its LSPs and on DLAs, as applicable, according to the RBI norms.

“According to 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),” the RBI notification said.

On the data protection, the RBI said data collected by digital lending apps should be need-based, should have clear audit trails and should be only done with the prior explicit consent of the borrower.

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

“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,” according to the RBI notification.

Sameer Aggarwal, CEO and founder of EV financing company Revfin, said, “We welcome the recommendations of RBI’s Working Group on Digital Lending. The recommendations will bring transparency and credibility to digital lending while protecting consumer interests. We expect the RBI will allow sufficient time for implementation of all recommendations and create a smooth process for ongoing functioning of of the digital lending ecosystem with support of SROs (self-regulatory organisations).”