Digital lending apps and lenders will fall under increased scrutiny and supervision as the Reserve Bank of India (RBI) has set detailed guidelines after several complaints were lodged against many such apps for indulging in frauds and unlawful activities.

The disbursal and collection of loan repayments will be undertaken only by regulated entities such as banks and shadow banks. This will not be left to third parties.

“All loan disbursals and repayments 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.

The lenders will directly pay the fee to the apps and the onus would not fall on the borrowers.

 A standardised Key Fact Statement (KFS) must be provided to the borrower before executing the loan contract.

Entities will have to disclose the all-inclusive cost of digital loans in the form of Annual Percentage Rate (APR) to the borrowers. APR shall also form part of KFS.

Automatic increase in credit limit without explicit consent of borrower is prohibited.

A cooling-off or look-up period during which borrowers can exit digital loans by paying the principal and the proportionate APR without any penalty shall be provided as part of the loan contract.

Regulated entities (REs) shall ensure that they and the LSPs engaged by them shall have a suitable nodal grievance redressal officer to deal with FinTech/ digital lending related consumer complaints. 

This officer shall also deal with complaints against their digital lending apps (DLAs). The details of the officer are to be prominently indicated on the website of the RE, its LSPs and on DLAs, as applicable.

The RBI has accepted several other recommendations. These include:

If any complaint lodged by the borrower is not resolved by the RE within the stipulated period (currently 30 days), he/she can lodge a complaint under the Reserve Bank – Integrated Ombudsman Scheme (RB-IOS).

Data collected by DLAs should be need-based, should have clear audit trails and be only done with prior explicit consent of the borrower.

Option may be provided for borrowers to accept or deny consent for use of specific data, including option to revoke previously granted consent, besides an option to delete the data collected from borrowers by the DLAs or LSPs.

Any lending sourced through DLAs (either of the RE or of the LSP engaged by RE) is required to be reported to Credit Information Companies (CICs) by REs irrespective of its nature or tenor.

All new digital lending products extended by REs over merchant platforms involving short-term credit or deferred payments are required to be reported to CICs by the REs.

In January last year, the RBI had set up a committee to formulate guidelines on digital lending.