The RBI digital lending guidelines will be applicable to the digital lending by banks, co-operative banks, NBFCs including housing finance companies. These guidelines also cover loans being offered by digital lending applications in partnership with the banks and the NBFCs
If you are taking a loan from a digital lending service provider or an app, then it is imperative that you know about your rights. Borrowers having been flocking to digital lending service providers/apps due to the ease and speed with which loans are disbursed. However, such borrowers have also faced numerous problems. “The concerns primarily relate to unbridled engagement of third parties, mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, and unethical recovery practices,” says the Reserve Bank of India (RBI). Therefore, in order to protect borrowers, the RBI has issued a set of digital lending guidelines that digital loan providers must follow.
Know these guidelines in order to empower yourself.
Which lenders are covered by these guidelines
The RBI digital lending guidelines will be applicable to the digital lending by banks, co-operative banks, non-banking financial companies (NBFCs) including housing finance companies. These guidelines also cover loans being offered by digital lending applications in partnership with the banks and the NBFCs. Most digital lending service providers/apps normally source the loans from one of the entities mentioned above i.e., banks and NBFCs.
Both the existing customers availing fresh loans and the new customers getting onboarded will be covered by these guidelines.
Know the charges
While seeking a loan from a lending app, first, a borrower needs to carefully check the charges such as annual percentage rate or the cost of borrowing money, interest rate per annum, application fee, processing charges, late payment penalties. In order to know these the borrower should read the key fact statement.
Key fact statement: Read carefully
Banks and NBFCs, which are providing loans through digital lending service providers (i.e., in partnership with fintech apps) or digital loan apps (such as SBI Yono), are required to provide a key fact statement to borrower before the loan is sanctioned. The regulator has also prescribed a standard format for key fact statement that the lending service providers need to provide.
The name of the regulated entity such the bank or NBFC which is originally providing the loan via digital lending service or app is required to be mentioned on the key fact statement.
The statement contains loan amount, total interest charge for the entire tenure, processing fees, insurance charges, tenure, repayment frequency, each instalment amount among others. Other relevant information such as cooling-off period, loan recovery mechanism, details of grievance redressal officer, is also mentioned.
As per the RBI guidelines, the borrower cannot be asked to pay any charges/fees which are not mentioned in the key fact statement. Thus, the borrower should read it carefully before taking a loan.
Digital loan disbursal: No third-party account
As per the RBI guidelines, the loan should be disbursed directly into the bank account of a borrower. No pass-through account or pool account of any third party should be involved in the loan disbursal process.
Hence, if a digital lending app is offering loan to you in partnership with a bank, then bank will disburse the loan to your bank account rather than via app. This makes the process more transparent.
Communication via email and phone
Once a loan is sanctioned, borrowers must be sent the key fact statement, summary of loan product, sanctioned letter, terms and conditions, account statement and privacy policies of the loan service providers or loan app to their registered email ID and phone number via SMS.
Further, any EMI received against the disbursed loan, must be communicated to the borrower via email and SMS. This way a borrower will get a confirmation of the amount repaid.
It is mandatory for the digital lending apps to provide a cooling-off period, once the loan is sanctioned. A cooling-off period is a time period during which a borrower can exit the loan by repaying the principal amount and the proportionate annual percentage interest rate without any penalty.
The banks and NBFC are free to fix the duration of cooling-off period. However, the cooling off period needs to be at least one day for loans with a tenure of less than seven days. For loans with a tenure of more than seven days, cooling-off period should be of at least three days, says RBI.
Payment, prepayment and penal charges
A borrower must note that lending service providers or digital loan apps are not permitted to charge any fee from him or her if not mentioned on Key Fact Statement. Only the banks and NBFCs which are the original lenders in the chain are allowed to charge any fees from a borrower, the banking regulator said.
In case of delayed payment of loan instalments or prepayment, penal charges can be levied. For prepayment, the penal interest will be based on the outstanding loan amount on an annualised basis. The rate of penal charges and prepayment charges, if any, should be clearly mentioned in the key fact statement provided before the disbursal of loan, say the RBI rules.
Communication details of Nodal grievance redressal officer is a must
Is the lending service provider or digital loan app charging extra fee or calling every now and then for payment?
If a borrower faces any issue, he or she can lodge a complaint with the a nodal grievance redressal officer. The contact details of the nodal grievance redressal officer should be available on the website of the bank or the NBFC and the loan websites or apps as well as on the key fact statement.
If the complaint is not resolved within 30 days, borrowers can file a complaint under the Reserve Bank-Integrated Ombudsman Scheme. “For entities currently not covered under RB-IOS, complaint may be lodged as per the grievance redressal mechanism prescribed by the Reserve Bank,” the regulator says.
Accessing, storing, sharing borrowers’ data
The digital loan apps or the lending service providers need to take consent from the borrower to access their data. The RBI guidelines allow a one-time access for camera, microphone, location and any other facility of the borrower for KYC procedure.
A borrower will also have an option to accept or deny permission for usage of his or her data and sharing it with a third-party. The option of deleting the data while uninstalling the loan app will also be available.
No biometric data can be stored in the systems by the apps or service providers, unless allowed by statutory guidelines, says the regulator. “The purpose of obtaining borrowers’ consent needs to be disclosed at each stage of interface with the borrowers,” RBI mentions.
The new guidelines aim to ensure that there is no misuse of the borrower’s personal data such as photos, contacts etc.
Banks and NBFCs also must ensure that the lending service providers comply with various technology standards or requirements on cybersecurity stipulated by RBI and other agencies, or as may be specified from time to time, for undertaking digital lending, the regulator adds. This is aimed at safeguarding the borrowers’ data and prevent misuse.