With the availability of various instant loan applications, getting a personal loan has become quite seamless. However, this easy access carries risks and some hidden flaws which a user must know before opting for them.
Recently, the Reserve Bank of India (RBI) has furnished the list of Digital Lending Apps (DLAs) being used by Regulated Entities (REs) (like banks, NBFCs etc.) to MeitY, which in turn, has shared the list with respective intermediaries (app stores like Google Play Store/App Store) and requested them to ensure that only the apps figuring in the list are hosted on their app stores.
This came after the MeitY issued an order to block 232 apps operated by overseas entities, including Chinese for being involved in betting, gambling and unauthorised loan service.
Instant loan apps
The proposition of availability of free app-based micro finance, which does not ask for any documentation, paperwork, signatures and promises loans in a matter of minutes, can be tempting for many people who are in need of money due to several reasons. However, it is crucial to examine carefully before choosing any app for taking a loan.
One needs to pull retrain and beware of the risk and dangers involved.
According to an awareness document by Union Bank of India, the app driven microlending firms mainly target the students and unemployed people who are in need of money.
The borrowers should be aware that many of these unregulated instant loan apps do not follow the rules and regulations stipulated by the RBI and follow unethical means and tactics to recover loans from the customers.
A word of caution
When an individual downloads the app for accessing the loan, they need to give permission to the app, to access their contact numbers, pictures, storage etc., in their mobile. The process seems to be hassle free, the loan providing app generally asks for reference of a few people and their contact numbers. They also deduct a heavy amount as processing charges before providing the loan.
The Union Bank of India’s awareness document noted that it is observed that in case the borrower defaults or delays the payment amount, they apply unethical and harsh pressure tactics. These tactics include sending notice or warnings to the reference contact numbers, calling and threatening the borrowers and their contacts with severe legal action and harassing them severely.
Some threats from unregulated instant loan apps
- Accessing the contact number and pictures from your mobile
- Misuse of contact numbers and pictures
- Excessive interest penalties
- Interest deducted before providing the loan
- Constant harassment and threats
- Unethical means of recovery
Last year the RBI issued guidelines on digital lending to protect customers from a range of issues including exorbitant interest rates by certain entities, data protection and grievance redressal. It also aimed to check unethical loan recovery practices.
RBI had stated that the regulatory framework is based on the principle that lending business can be carried out only by entities that are either regulated by the RBI or entities permitted to do so under any other law.
Also Read: Are You A Digital Lending App User? Know Your Rights, Complaint Process
Under the new norms, all loan disbursals and repayments are required to be executed only between the bank accounts of the borrower and the regulated entities (RE) without any pass-through/ pool account of the Lending Service Providers (LSPs).
Recently, the Directorate of Enforcement attached proceeds of crime worth Rs 859.15 crore generated by accused persons/entities through illegal loan apps.
Over the last year, enforcement agencies found a number of loan apps which were found to have been indulging in predatory lending, charging high interest rates and fees. Harassment of users over the repayment of their dues have led to reported incidents of dozens of suicides.
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