New digital lending rules by RBI: The Reserve Bank of India (RBI) has changed the guidelines for digital lending, which will come into effect from today, December 1.
The revised guidelines on digital lending aim to streamline the process of digital lending and protect consumers from unusually high interest rates from lenders. The RBI had earlier said that the new guidelines would keep a check on unethical debt collection practices. In August, the central bank announced rules for digital lending for the first time. In September it issued more detailed guidelines. After this, RBI asked all the regulated entities involved in digital lending to follow the new lending guidelines by 30 November.
What are the new rules?
- RBI said that all loan disbursements and repayments are to be executed only between the bank accounts of borrowers and regulated entities like banks and NBFCs.
- These guidelines will cover the areas of lending processes, disclosure, technology, and data collection by regulated entities, their digital lending applications (DLAs) and their appointed loan service providers (LSPs).
- Further, any fees, charges etc. payable to LSPs in the credit intermediation process shall be paid directly by the regulated entities (REs) and not by the borrower, RBI said in its statement.
- RBI had said that before executing the loan contract, REs should provide a standardized material fact statement to the borrower.
- The all inclusive cost of digital loans should be given to borrowers in the form of Annual Percentage Rate (APR) and APR will also be part of KFS.
- A cooling-off/look-up period during which the borrower can exit the digital loan by paying the principal amount and proportionate APR without any penalty will be provided as part of the loan contract.
- Borrower’s consent will be necessary for increasing the credit limit. Automatic credit increment without consent shall be prohibited.
- The central bank said that all involved REs should see to it that they have an appropriate nodal grievance redressal officer to deal with complaints related to fintech/digital loans. Such Grievance Redressal Officers will also deal with complaints against their respective Digital Lending Apps.
- If any complaint lodged by the borrower is not resolved by the RE within the prescribed period (currently 30 days), he/she can lodge a complaint under Reserve Bank – Integrated Ombudsman Scheme.
“RBI’s revised guidelines on digital lending pave the way towards a safe, inclusive and accessible digital lending ecosystem. It empowers customers with complete transparency about the information and data that is being accessed by the lenders, giving them control over their personal information. RBI has also standardized the disclosures, therefore, enabling customers to take more informed decisions. We anticipate some filtration when these suggestions come into effect as it is the responsibility of all companies including unregulated organizations classified as LSPs (loan service providers) to comply with these regulations,” said Soparno Bagchi, COO, BalanceHero India.
“The guidelines are aimed at tackling concerns such as unscrupulous lending practices and third party involvement, mis-selling and data privacy. We have seen fintech players making requisite changes in their business models to comply with RBI guidelines. While the new guidelines have increased the cost of compliance for fintechs, incumbents have demonstrated positive adoption. The stakeholders involved understand the potential of fintech to the last mile of the country, effective credit delivery as well as the need to maintain a compliant operating environment to usher in a healthy and sustainable growth of the sector,” Nagin Komu, Founder & CEO, Digitap said.
“Players that are licensed and compliant will have an edge over fintech in the near future, partnering with other NBFCs, and are likely to see increasing market share. This is a welcome move. RBI wants to ensure that the institutions they regulated, the onus is on them. For unregulated entities classified as LSPs (loan service providers), the burden of complying with these regulations is almost the same. As a result, we expect some level of filtration once these guidelines come into effect. This decision of RBI will protect the consumers and provide a level playing field from the customers point of view.”