RBI Releases Guidelines To Regulate Digital Lending To Crack Down On Frauds, Unlawful Activities

In the guidelines, the RBI said a standardised Key Fact Statement (KFS) must be provided to the borrower before executing any loan contract.

Author: India.com Business Desk Edited by: Manmath Nayak

Updated: August 10, 2022, 4:48 PM IST

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https://www.india.com/business/breaking-rbi-releases-guidelines-to-regulate-digital-lending-to-crack-down-on-frauds-unlawful-activities-5565070/ Copy

The RBI said any fee or charges payable to LSPs in the credit intermediation process will be paid directly by the regulated entity and not by the borrower.

Mumbai: The Reserve Bank of India on Wednesday released guidelines to regulate digital lending to crack down on online frauds and unlawful activities. In the guidelines, the Central Bank said the loan disbursals and repayments will have to be executed only between the bank accounts of the borrower and the regulated entity without any pass-through or pool account of the lending service provider (LSP) or any third party.

The RBI said based on the inputs received from the Working Group on ‘digital lending, it has formed regulatory framework to support orderly growth of credit delivery through digital lending.

“All loan disbursals and repayments are required to be executed only between the bank accounts of the borrower and the regulated entity without any passthrough/ pool account of the loan service provider or any third party,” the central bank said in the guidelines.

The RBI also added that any fee or charges payable to LSPs in the credit intermediation process will be paid directly by the regulated entity and not by the borrower.

Even as the RBI has accepted a few of the regulations, some, accepted in principle, require further examination, the RBI said in the guidelines.

In the guidelines, the bank said all fees and charges payable to the loan service provider will have to be paid by banks and non-banks and not by the borrower.

In the digital lending guidelines, the RBI mandated that all-inclusive costs of digital loans will be required to be disclosed to borrowers and the entities will have to provide a cooling-off period during which the borrowers can exit digital loans by paying the principal and the proportionate costs without any penalty.

In January last year, the central bank had set up a working group to study the issues regarding digital lending and suggest regulations. The working group had in November proposed strict norms for digital lenders, including subjecting the digital lending apps to a verification process by a nodal agency to be set up in consultation with stakeholders. The working group had also suggested a self-regulatory organisation covering the participants in the digital lending ecosystem.

In the guidelines that were accepted, the RBI said a standardised Key Fact Statement (KFS) must be provided to the borrower before executing any loan contract. And the entities will also have to disclose the all-inclusive cost of digital loans in the form of an Annual Percentage Rate or APR, which will be a part of the KFS, the RBI added.

The central bank further said that to address the consumer complaints related to fintech or digital lending, regulated entities will have to ensure that they and the LSPs engaged by them shall have a suitable nodal grievance redressal officer.