RBI digital lending regulatory framework: The Reserve Bank of India (RBI) said on Wednesday that a regulatory framework to support orderly growth in lending through digital lending methods while alleviating regulatory concerns has been solidified after considering input from various stakeholders.
“This regulatory framework is based on the principle that lending business can only be conducted by entities that are either regulated by the Reserve Bank or entities authorized to do so under some other law,” RBI said in a statement.
It added that the digital lender universe is divided into three groups – i) companies that are regulated by the RBI and are allowed to engage in lending operations; ii) Entities that are authorized under other legal/regulatory provisions to carry out the lending but are not subject to the supervision of RBI; iii) Entities lending outside the scope of statutory/regulatory provisions.
The framework is based on the contributions of the working group “Digital lending including lending via online platforms and mobile apps” (WGDL) founded by RBI.
Under the new regulations, all loan disbursements and repayments need to be made only between the borrower’s bank accounts and the Regulated Entity (RE) with no pass-through/pool account from the LSP (credit service provider) or any third party. “Any fees, charges, etc. to be paid to the loan servicer in the loan brokerage process are paid directly by RE and not by the borrower.”
The rules also prohibit automatic credit limit increases without the express consent of borrowers, the RBI statement said.
According to the standards, the borrower must be provided with a standardized key fact statement (KFS) before the loan agreement is concluded; The total cost of digital loans in terms of Annual Percentage Rate (APR) must be disclosed to borrowers, and APR will also be part of KFS.
A cooling off period is provided as part of the loan agreement, during which borrowers can exit digital loans by paying the principal amount and prorated APR without penalty.
REs will ensure that they and the LSPs they engage have an appropriate Nodal Complaints Officer to deal with fintech/digital lending related complaints. This Complaints Officer will also deal with complaints against their respective DLAs (Digital Lending Apps). The contact details of the Complaints Officer will be prominently displayed on the RE’s website, its LSPs and, where applicable, DLAs in accordance with RBI standards.
“Under existing RBI policies, if a grievance filed by the borrower is not resolved by the RE within the specified time limit (currently 30 days), the borrower may file a complaint under the Reserve Bank – Integrated Ombudsman Scheme (RB-IOS). “, the RBI statement said.
On privacy, RBI said the data collected by digital lending apps should be on-demand, have clear audit trails, and should only be done with the borrower’s prior explicit consent.
Borrowers may be offered the ability to accept or decline consent to the use of certain data, including an option to withdraw previously given consent, alongside an option to delete data collected by borrower DLAs/LSPs.
“Any lending originating through DLAs (either by RE or by LSPs engaged by RE), regardless of their type or tenor, must be reported by REs to Credit Information Organizations (CICs). All new digital lending products offered by REs through merchant platforms that involve short-term loans or deferred payments must be reported by REs to CICs,” the RBI statement said.
Sameer Aggarwal, CEO and founder of EV finance company Revfin said: “We welcome the recommendations of the RBI working group on digital lending. The recommendations will bring transparency and credibility to digital lending while protecting consumer interests. We expect that the RBI will allow sufficient time for the implementation of all recommendations and, with the support of the SROs (self-regulatory organisations), create a smooth process for the further functioning of the digital lending ecosystem”.
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