Digital loans must be credited directly to bank accounts: RBI

On Wednesday, the RBI demanded that digital loans be credited directly to borrowers’ bank accounts and not through a third party, as it put in place strict standards to curb rising malpractice in the space. digital lending.

Further, the Reserve Bank of India has stated that digital lending entities and not borrowers should pay any fees or charges payable to Lending Service Providers (LSPs) under the credit intermediation process.

In issuing a detailed set of guidelines for digital lending, the RBI mentioned concerns mainly related to unbridled third party engagement, mis-selling, breach of data privacy, unfair business conduct, charging exorbitant interest rates and unethical collection practices.

The RBI had constituted a working group on “digital lending, including lending through online platforms and mobile applications” (WGDL) on January 13, 2021.

He further said that the regulatory framework to support orderly growth in credit provision through digital lending methods while alleviating regulatory concerns has been firmed up. “This regulatory framework is based on the principle that lending activities can only be carried out by entities that are either regulated by the Reserve Bank or entities authorized to do so under any other law,” he said. -he declares.

The Reserve Bank’s regulatory framework is focused on the digital lending ecosystem of RBI’s regulated entities (RE) and LSPs contracted by them to extend various authorized credit facilitation services.

“All loan disbursements and repayments shall be executed only between the bank accounts of the borrower and the RE without any transfer/pool account of the LSP or any third party,” the RBI said. Further, all fees, charges, payable to LSPs in the process of credit intermediation should be paid directly by RE and not by the borrower, he added.

He further stated that a standardized Key Fact Statement (KFS) must be provided to the borrower before the execution of the loan agreement.

This has been mandated to be tracked by REs, their LSPs, and REs’ Digital Lending Applications (DLAs), among others.

If a complaint filed by the Borrower is not resolved by the ER within the allotted time (currently 30 days), the Borrower may file a complaint with the Reserve Bank – Embedded Ombudsman Program (RB-IOS).

The RBI further stated that data collected by DLAs should be needs-based, have clear audit trails and only with the prior explicit consent of the borrower. The option may be offered to borrowers to accept or deny consent to the use of specific data, including the option to revoke previously granted consent, in addition to the option to delete data collected from borrowers by the DLAs/LSPs.

RBI also said that some task force recommendations have been accepted in principle, but require further consideration.

In addition, some recommendations require broader engagement with central government and other stakeholders given the technical complexities, setting up institutional mechanisms and legislative interventions.