NEW DELHI: The government is planning a comprehensive legislature to curb the proliferation of illegal lending apps. The department of financial services, Ministry of Finance, has prepared a draft bill, which proposes severe punishment with jail term of up to 10 years and monetary fines of up to `1 crore for those found involved in promoting unregulated lending activities.
The Bill seeks to ban all illegal lending activities whether carried out by digital means or otherwise. It has also proposed to designate an authority which would maintain a database of all authorised lenders operating in the country. The database will have a facility for the public to search any authorized lender in the country. If a regulated entity fails to provide information sought by the authority, they would be fined by up to Rs 5 lakh.
Every regulated lender will have to inform the authority about the activities being undertaken by them. This information has to be shared by the authority with law enforcement authorities like the Central Bureau of Investigation (CBI) and state police.
The bill provides for not only severe punitive measures against those found involved in illegal lending, but also raids without warrant against the alleged culprit.
Mayank Arora, director-regulatory, Nangia Andersen India, says the intent of the proposed legislation is strong, as it provides for criminalisation of offences and punishments for persons involved as accomplice, apart from persons directly involved.
Two years ago, the RBI notified the Digital Lending Guidelines to curb unfair practices by regulated entities.
“One of the main issues in the digital lending domain is that the consumers are not aware of the real lenders as there is no physical interaction in the lending transaction. Unregulated entities used this to camouflage as authorised lenders, affecting the entire ecosystem,” added Arora.
Mushrooming illegal loan apps have become a menace in the country. These loan apps typically offer small loans at exorbitant high interest rates, and use extortionist ways to recover money from borrowers, forcing many borrowers to even take their own lives. Many of these apps operate from overseas countries with the help of little-known local finance companies.