MUMBAI: If you think the threat of illegal digital lending apps is a thing of the past, recent incidents will change your perception. A 26-year-old woman in Mumbai lodged a complaint with the Bandra police in June about her morphed photos. In the image, her face had been morphed over someone else’s naked body and photos were sent to some of her friends.
This came after she received calls from representatives of an illegal digital lending app through which she had taken the loan. The calls started coming from unknown numbers after she could not fully repay the loans taken from the Chinese app. The callers would use abusive language and threaten to circulate these morphed images to her contacts.
In a similar case, the Delhi police busted a call centre in April, which was functioning as a finance company, and nabbed 18 persons for extorting money from people through a Chinese loan app. They lured people by offering short-term loans at very low interest rates. After disbursing the loans, they would raise the interest rates sharply. Even after the repayment, the call centre executive would demand more money and threaten them to circulate their morphed images to their friends.
These are not some isolated incidents related to illegal online apps in the country. The number of complaints against illegal digital lending apps has risen to 1,062 in 2022-23, according to the finance ministry data.
The trap to lure customers
Illegal online lending apps target financially stressed individuals who are in need of money. They promise low interest rates and that too in a very short time. “Especially in the low-income segment, several factors lure customers to these illegal lending apps. These customers are often desperate due to a lack of structured sources of funding. These apps exploit the vulnerabilities of individuals facing financial difficulties. Other factors like ease of access, quick approval processes, and minimal documentation, make them appealing for urgent financial needs,” Rishi Anand, MD & CEO, Aadhar Housing Finance told TNIE.
“Additionally, people with limited access to traditional banking services may turn to these apps. Illegal digital lending apps pose a significant threat to consumers and the financial industry,” Anand added.
While banks and non-banking financial companies take time to approve a loan request as they do the background check of borrowers, illegal online apps do not care about such legal requirements.
“Illegal apps often require very little documentation and approve a loan quickly. Also, such apps often offer low interest rates, which can be very tempting for customers struggling to get a loan from a traditional bank,” Shruti Jain, Chief Strategy Officer, Arihant Capital Market Ltd told this newspaper. “However, it is essential to remember that illegal digital lending apps are often predatory and can charge exorbitant interest rates and fees. They may also use abusive collection practices,” she added.
How to spot illegal apps
In the digital age, access to credit through digital lending apps can be a boon, but it also comes with risks. To protect yourself from illegal digital lending apps, it is essential to be vigilant and thorough in your research.
“Being vigilant is key to spot illegal digital lending apps. These apps often lack transparency in terms of regulatory approvals and charge exorbitant fees. Customers should be wary of any lending app with unclear terms, excessive data requests, or an unprofessional design. You will often find these apps through malicious links via SMS or email, but they will not be available on app stores,” said Rishi Anand.
“Responsible lending and financial literacy also help customers identify such apps. Customers can also do a comparison with other legal app offerings to help ascertain the authenticity of these apps,” he added. User reviews and ratings on app stores can provide valuable insights into the app’s legitimacy. Borrowers should read through the comments and ratings to see if other users have reported any suspicious behaviour or unethical practices. Illegal lending apps frequently use high-pressure tactics to coerce borrowers into taking out loans or repaying them. If you receive constant calls, messages, or threats from the app’s representatives, it is a clear sign of an illegal operation.
“Borrowers should be cautious of undisclosed fees, like processing or late payment charges, which can signal an illegal app. Excessive messages or calls should ring alarm as aggressive marketing may indicate an untrustworthy lending app. It is recommended to choose a reputable lender and consider financial advice when opting for digital loans,” said Shruti Jain.
Look for legal digital lending apps
Customers can identify legal digital lending apps through several key indicators. Start by verifying regulatory approvals and licenses, as legitimate apps prominently display this information, says Anand.
“Check for reasonable interest rates and fees compared to established lenders. Ensure transparent and clear terms and conditions without confusing language,” he added. Legal apps request only necessary permissions and prioritize customer data protection. Borrowers should look for robust customer support and contact information, including a physical address.
“Legitimate lenders do not ask for upfront payments or processing fees. Choosing regulated and reputable financial institutions ensures ethical lending and also safeguards your financial interests,”
added Anand.