Digital lending: RBI publishes regulatory framework for digital lending
The panel was set up on January 13, 2021 by RBI. The framework is based on the principle that lending activities can only be carried out by entities that are either regulated by the central bank or entities authorized to do so under any other law.
“All loan disbursements and repayments shall be executed only between the bank accounts of the borrower and the regulated entity without any relay/pool account of the loan service provider or any third party,” the central bank clarified. .
He also said that all fees and charges payable to the lending service provider shall be paid by banks and non-banks and not by the borrower.
As part of its digital lending guidelines, the RBI has also required that the all-inclusive costs of digital lending be disclosed to borrowers. Entities will need to provide a cooling-off period during which borrowers can exit digital loans by paying principal and proportional fees without any penalty.
RBI-regulated entities will also need to ensure that any lending service providers they engage will have an appropriate nodal grievance officer to handle complaints related to digital lending.
Banks and non-banks alike will need to ensure that the digital lending apps they integrate prominently display information about product features, loan limit and costs involved.
While some of the panel’s recommendations were accepted for immediate implementation, some were accepted in principle and will require further implementation. Some recommendations require broader engagement with central government and other stakeholders given technical complexities, setting up institutional mechanisms and legislative interventions.
In accordance with the list of accepted recommendations, it is now prohibited to automatically increase the credit limit without the explicit consent of the borrower. If a complaint filed by the borrower is not resolved by the Regulated Entities (REs) within the given time frame (currently 30 days), they can file a complaint with the Reserve Bank – Integrated Ombudsman Program (RB-IOS )7. These were intended to protect customers.
With respect to data protection, data collected by Digital Lending Applications (DLAs) should be needs-based, should have clear audit trails, and should only be done with the prior explicit consent of the owner. borrower, the RBI said.
Borrowers may be offered the option of accepting or denying consent to the use of specific data, including the possibility of revoking previously granted consent, in addition to the possibility of deleting data collected from borrowers by the DLAs/LSPs (Lending Service Providers).
ERs must provide a Key Fact Statement (KFS) to the borrower prior to contract execution in a standardized format for all digital lending products. Any fees, charges, etc., which are not mentioned in the KFS cannot be charged by the ER to the borrower at any time during the term of the loan.
The RBI also required the loans to be reported to the credit bureaus.
“Any loan obtained through DLAs must be reported to credit reporting companies, regardless of its nature or tenor,” the regulator noted. “All new digital lending products extended by regulated entities on merchant platforms involving short-term credit or deferred payments should be reported to CICs.”