RBI sets strict standards for digital lending services to limit errors

The Reserve Bank of India (RBI) on Wednesday required digital loans to be credited directly to the borrower’s bank account and not through any third party, as it strict standards to limit the proliferation of errors in the digital lending space. In addition, the RBI said digital lenders, not borrowers, pay the fees or charges payable to the Loan Service Provider (LSP) in the credit intermediation process.

Issue a detailed set of instructions for digital lendingthe RBI mentioned concerns primarily related to unrestrained involvement of third parties, mis-selling, data breaches Privacyunfair business practices, exorbitant interest rates and unethical recovery practices.

RBI established the Working Group on ‘digital lending including lending through online platforms and mobile applications’ (WGDL) on January 13, 2021.

It also said the regulatory framework to support orderly growth in the provision of credit through digital lending methods while mitigating regulatory concerns has been strengthened.

“This regulatory framework is based on the principle that the lending business can only be carried out by institutions regulated by the Reserve Bank or by institutions authorized to do so under any other law.” it said.

The Reserve Bank’s regulatory framework focuses on RBI’s Regulated Institutions (RE) digital lending ecosystem and the LSPs it participates in to expand its credit support services. different permissions.

“All loan disbursements and repayments are required to be made only between the borrower’s bank account and the RE without any transfer/pooling accounts of the LSP or any other party,” the RBI said. which third”.

In addition, any fees and charges payable to LSPs during the credit intermediation process will be paid directly by the RE and not by the borrower.

It added that a standardized Statement of Key Facts (KFS) must be provided to the borrower prior to the execution of a loan agreement.

This has been required by REs, their LSPs and REs Digital Lending Applications (DLAs), among others.

If any of the borrower’s complaints are not resolved by the RE within the specified time limit (currently 30 days), they can appeal under the Reserve Bank – Integrated Ombudsman System (RB-IOS) .

The data collected by the DLA must be need-based, have a clear audit trail, and be performed only with the explicit prior consent of the borrower, RBI added.

An option for borrowers to accept or decline consent for the use of specific data may be provided, including the option to revoke consent previously granted, in addition to the option to delete data collected from borrowers with DLAs/LSPs.

The RBI also said some of the working group’s recommendations were accepted in principle, but they needed further examination.

In addition, there are recommendations that require broader engagement with the central government and other stakeholders considering the technical complexity, institutional set-up and interventions.

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