Welcome regulation for digital lending
The RBI’s long-awaited regulatory framework for digital lenders offers much-needed clarity, complete with a grievance redressal mechanism and an Ombudsman scheme. The norms are expected to arrest rising distress among borrowers over mis-selling, breach of data privacy, harassment regarding loan recoveries, and steep interest rates. The regulations, based on the RBI’s internal working group recommendations, reaffirms faith that lending will be pursued strictly by regulated entities in compliance with the laws of the land, without involving third parties and thereby eliminating the scope of malpractices. Issues such as data privacy and user consent have morphed into contentious issues of late and restoring consumer confidence was integral for fintech players to survive and help borrowers make informed credit choices.
Of course, these are only the first set of operational guidelines and more norms may be added with time, as digital lending evolves. For now, the focus was solely on protection of consumer interests, transparency of loan pricing and fee, and data protection. RBI also clarified that loan disbursements must be made only into a borrower’s bank account, and not into wallets or prepaid cards and that all digital loans must be reported to credit bureaus. This lowers the risk of over-indebtedness and risk build-up in the system. The move also brings parity with credit card-issuing banks, by prohibiting automatic increase in credit limit without borrower’s consent.
Some other recommendations are under examination, while others weren’t taken up for discussion including the need for tighter supervision of banks’ partnership with digital entities. Besides, the central bank itself listed a few recommendations for government’s consideration like enacting a law for outright ban of unregulated entities and rules for cracking down unlawful digital apps. It’d be a reasonable assumption that these are early days and as market players adapt new models, one would expect tighter oversight, as was the case with banking or NBFC regulation. Protection of consumer interests is paramount, and the new norms will remain one chink of light until key issues like the menance of fake loans apps are addressed.