Guidelines to Regulate Digital Lending
Source : Business Standard
GS III : Economy

What is discussed under Guidelines to Regulate Digital Lending?

1. Key Facts
2. What are the changes?

Why in News ?

In its effort to mitigate the concerns arising from credit delivery through digital lending methods, the Reserve Bank of India (RBI) came out with guidelines aimed at firming up the regulatory framework for such activities.

Key Facts

• The banking regulator has categorically specified that the lending business can only be carried out by entities regulated by it or those permitted under the law.
• The central bank has divided the universe of digital lenders into three groups entities regulated by the RBI and permitted to carry out lending business; entities authorised to carry out lending according to other statutory/ regulatory provisions but not regulated by the RBI, and entities lending outside the purview of any statutory/ regulatory provision.
• These guidelines are for the first category, or entities regulated by the RBI.
• As for other entities which are part of the second and the third categories the RBI has asked respective regulator/ controlling authority/ the central government to formulate guidelines based on the recommendations of the working group on this subject it had formed back in January 2021.

What are the changes?

• All loan disbursals and repayments through the digital lending apps are required to be executed only between the bank account of the

  

  borrower and the regulated entity, without any pass- through or pool account of the lending service provider (LSP) or any third party.

• Apart from that RBI-regulated entities have to ensure that fees for LSPs are paid directly by them and are not charged by LSP to the borrower.
• Further, the the banking regulator has mandated the regulating entities to ensure the upfront disclosure of all-inclusive cost via annual percentage rate to the borrower.
• The regulating entities now will also have to provide a key fact statement (KFS) to the borrower before the execution of the contract in standardised format for all digital lending products.
• Regulated entity cannot increase the credit limit without the explicit consent of the borrower.
• The KFS must have details of The KFS must have details of APR, terms and conditions of recovery mechanism, details of grievance redressal officer designated specifically to deal with digital lending/fintech-related matters, and cooling-off/look-up period, terms and conditions of recovery mechanism, details of grievance redressal officer designated specifically to deal with digital lending/fintech-related matters, and cooling-off/look-up period,”
• Besides to protect data privacy, Central bank said that the data collected by digital lending apps has to be need-based, with the customer’s prior consent, and can be audited, if required.
• To raise their grievances and complaints borrowers can reach out to nodal grievance redressal officers engaged by the Regulated Entities and the LSPs. A borrower can also complain against their digital lending mobile app.
• The details of the officers will be provided on websites of regulated entity, LSPs and the app.

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