RBI Governor Expresses Concern over Mushrooming of Unregulated Digital Lending Apps
Moneylife Digital Team 31 October 2022
Expressing concern over the mushrooming of digital lending apps or DLAs, many of which do not abide by any regulations or fair practice codes, Shaktikanta Das, governor of Reserve Bank of India (RBI), feels that the technology revolution has opened the backdoor for unregulated technology players into the financial space. 
Addressing the annual conference of RBI ombudsmen in Jodhpur, Mr Das says, "This leads to several concerns including mis-selling, breach of customer privacy, unfair business conduct, usurious interest rates and unethical loan recovery practices. Customers are initially tempted to borrow from these entities because of simplified or no documentation requirements followed by prompt disbursals. It is only later that the customers realise the serious downsides to such borrowings."
Last month, RBI issued the guidelines on digital lending which require regulated entities (REs) to provide a key fact statement (KFS) to the borrower before the execution of the contract. While offering more protection, the new framework allows borrowers to exit from the digital loan during a cool-off period by paying the principal and loan costs. It also prohibits digital lenders from accessing files and media, contact list, call logs and telephony functions from the borrower's mobile phone. (Read: Digital Loan: RBI Allows Borrower To Exit during Cool Off Period; Prohibits Lenders from Accessing Mobile Phone Resources)
In his speech, the RBI governor expressed concerns over mis-selling, lack of transparency in pricing, disproportionate service charges, and very high penal rates. "Despite our enhanced focus on customer service and consumer protection, I am very concerned to notice that there are still persistent grievances in some specific areas like mis-selling, lack of transparency in pricing, disproportionate service charges, very high penal rates, etc. Stories in social-media about use of strong-arm tactics by some recovery agents overshadow the good work that is being done for customer protection, both by the REs like banks, and non-banking finance companies (NBFCs) and the RBI."
"In a large and vibrant financial system like ours, some level of complaints is understandable. What is of concern is that still a large number of complaints pertain to traditional banking. This calls for serious review of the working of the customer service and grievance redress mechanism in the regulated entities. The root cause of persistence of such grievances needs to be analysed and necessary corrective measures undertaken," Mr Das added.
The RBI governor also expressed concerns over increasing incidents of payment frauds through phishing, vishing, fake links and websites, and remote access apps. He says, "Many complaints arise as customers either struggle to use the products or use them wrongly or seek help from strangers which result in frauds and losses. This makes customer education and awareness central to protecting the rights of the customers as well as safeguarding them from digital frauds and cheating... REs can do their bit by designing customer friendly interfaces, improving fraud detection mechanisms as well as taking measures to increase customer awareness."
"Safeguarding customer interests also entails exercising a strong oversight and monitoring of outsourced vendors," Mr Das says, adding, "It may be appreciated that outsourcing of any activity by a regulated entity does not diminish its own obligations. Regulated entities are responsible for the actions of their service providers including direct sales agents (DSA), direct marketing agents (DMA) and recovery agents." 
According to the RBI governor, digitisation of financial services should also have a human touch for customers. "The approach to customers should not be mechanistic or impersonal. Financial entities need to sensitise themselves in this regard. The interface with vulnerable segments, such as senior citizens and weaker sections, should be done with due sensitivity."
"The RBI ombudsmen and the regulated entities must identify the root causes of persisting customer complaints and take necessary systemic measures to correct them. The resolution of customer complaints by the REs and the RBI ombudsmen has to be fair and quick. Even as the financial landscape evolves and transforms, the underlying principles for good customer service and customer protection namely, transparency, fair pricing, honest dealings, responsible business conduct, protection of consumer data and privacy continue to be relevant. Together, we can all make a difference to the customers," Mr Das concluded.  
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