HYDERABAD: Recently a spate of suicides has been reported across the country due to harassment by money recovery agents belonging to app-based loan providers. The cybercrime wing of the Cyberabad commissionerate has also arrested persons in connection with cases of harassment by organisers of micro-loan apps. The Hyderabad Police have issued red corner notices against some Chinese nationals in connection with these illegal online loan app businesses. Google India has pulled down several instant loan apps from their Play Store. The Reserve Bank of India (RBI) has also formed a working group to study digital lending activities of both regulated as well as unregulated entities.
The digital revolution of the 21st century simplified many aspects of daily life, even in the banking and lending industry. Digital loans were more accessible and simpler, especially in the Covid-19 induced lockdowns. However, there are certain risks while borrowing from online lending and mobile lending platforms. Matthew Flannery, CEO and co-founder, Branch Personal Finance App lists what potential borrowers should look into before availing of a digital loan.
How do digital lending apps work
Digital lending is primarily done through a smartphone app. In order to get the loan, you are supposed to install one such application on your phone, provide information, upload the asked documents, and complete the verification process. Once all the formalities are done, the lender app evaluates the application based on details provided and assesses the risk and interests. The loan is then approved within minutes and usually transferred to the bank account of the borrower. This ease in lending has unfortunately also attracted some predatory apps which do not adhere to the rules and regulations set by RBI and Digital Lenders Association of India (DLAI).
Determine platform’s authenticity
Any digital lending platform is either a bank or a Non-Banking Financial Company (NBFC) and can also be an establishment partnering with a bank or an NBFC. Verifying if the app you’re borrowing from is registered as an NBFC is the single main factor in evaluation. A renowned bank, NBFC, or an establishment partnering with any of these two is not a problem. Digital lending platforms registered with the central bank or state-level authorities are the ones licensed to provide digital loans. When you are taking chances on digital loans, you should always dig to know whether your digital lender is registered with the central bank and other government entities of money lending or not. If there are no signs of it, just back off.
An application with no KYC
If you come across a digital lending app that does not conduct a proper background check for loans, then you should avoid going forward with it. Many times people misinterpret such applications as customer-friendly where they do not ask the user to go through a KYC. Such applications have become a perfect trap for people looking out for some easily lent money. One should know that background check or KYCs is a crucial process of digital lending. It is done to authenticate customers to avoid any identity theft or financial fraud. All the genuine digital lending applications will have a KYC process for their consumers to go through before they apply for any loan.
Be watchful of hidden charges
The late submission charges are the common traps which most of these unreliable lending applications force on their customers. People signing up for something like this usually end up paying an extra 2-3 per cent of their EMI amount if they are not able to make the payment on time.
Read terms and conditions properly
If you read out the terms and conditions thoroughly and adequately, then you will easily be able to point out something fishy about the loan or the lending platform. Most people do not give enough attention to the terms and conditions page because of their length and end up giving consent to something which can be easily used to exploit them. They will also lose the option of taking legal action as they themselves have approved on those terms.
City-based foundation files PIL
Hyderabad-based End Now Foundation has filed a PIL in Supreme Court on Instant Loan Apps (Over 134+ Apps) and it is allotted a Diary No: 3150/SCI/PIL(E)2021. “We have submitted evidence of more than 81+ apps that are having access to entire phones- live location, contacts, gallery, and all communication,” says Anil Rachamalla, founder, End Now Foundation, an internet advisory body.
— Tamanna S Mehdi
tamanna@newindianexpress.com
@tamannamehdi