BENGALURU: Taking a grim view of the rising number of frauds reported on loan apps, exorbitant interest rates and unethical recovery practices, the Reserve Bank of India on Wednesday issued guidelines to tighten the rules of lending in the digital space.
The central bank said loan disbursals as well as repayments can only executed via the bank accounts of borrowers and regulated entities (banks and NBFCs). There should not be any pass-through or pool account of the lending service providers, the regulator clarified.
Under the new set of regulations, fees paid to lending apps should be borne by the regulated entities and not the borrower. The central bank also prohibited any automatic increase in credit limit without explicit consent of the borrower.
Issuing a detailed set of guidelines for digital lending, the RBI flagged the concerns related to unbridled engagement of third parties, mis-selling, breach of data privacy, among others. “RBI is not trying to stifle fintech innovation.
However, certain guardrails are needed to protect consumer interest. In the past, unchecked innovation has led to disastrous results like fake apps. The onus of compliance is on regulated entities as always,” said Kunal Varma, Co-Founder and CEO, Freo, a consumer credit-led neobank.