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RBI panel proposes stricter norms to prevent illegal digital lending

RBI panel proposes stricter norms to prevent illegal digital lending
RBI panel proposes stricter norms to prevent illegal digital lending

Reserve Bank of India (RBI)’s working group has reportedly recommended imposing separate laws for digital lenders.

The proposal includes the verification of Digital Lending Apps by a nodal agency which will be set up under the consultation of stakeholders and establish an SRO (Self-Regulatory Organization) that covers the participants in the ecosystem of digital lending.

Under the leadership of Jayant Kumar Dash, the Executive Director of RBI, the central bank has established the digital lending working group on January 13, 2021. This includes lending via mobile apps and online platforms. The working group was founded following concerns of customer protection and business conduct arising due to digital lending activities.

The working group has proposed separate legislation to avoid illegal activities in digital lending. In addition, the committee has recommended the development of certain baseline tech standards and their compliance as a pre-condition for offering solutions related to digital lending. For instance, the servicing and disbursement of loans only via bank accounts of the digital lenders and the disbursement of loans directly into the borrower’s bank account.

The panel has also specified data collection with the explicit and prior consent of borrowers with audit trails that are verifiable. It confirmed that all the data will be stored in servers situated in India.

The working group also recommends the documentation of the usage of algorithmic features in digital lending to assure necessary transparency. In addition, the panel proposed that each digital lender needs to submit a key fact statement including the Annual Percentage Rate in a standardized format.

Furthermore, the panel suggested that a Code of Conduct should govern the usage of unsolicited commercial communications to be put in place by the suggested SRO and maintain a negative list of Lending Service Providers by the suggested SRO.

Digital lenders will be required to work on a standard code of conduct for recovery that will be formulated by the proposed SRO with RBI’s consultation.

Source credits:

https://www.moneycontrol.com/news/business/rbi-working-group-recommends-stricter-norms-for-digital-lenders-7736851.html

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