The crackdown against instant money lending apps firms, launched across several of our cities, after six cases of suicides, due to harassment by such companies were reported in Telangana since December 2020, is timely. Nonetheless, it requires sustained efforts in the right earnest to keep them under check.
 
Against the backdrop of a preliminary probe into the financial transactions of the online loan apps which has revealed that there have been 1.4 crore transactions worth nearly Rs 21,000 crore, carried out during the last few months, the setting up of a working group (WG) by the Reserve Bank of India on 13 January this year, to evaluate digital lending activities is laudable
 
The WG which has to submit its report within three months would identify risks posed by unregulated digital lenders and suggest regulatory measures. Its terms of reference among others includes recommending a robust Fair Practices Code for digital lending players, insourced or outsourced; measures for enhanced Consumer Protection, robust data governance, data privacy and data security standards for deployment of digital lending services.
 
Last June the Central Bank had cautioned Banks and Non-Banking Financial Companies (NFBCs) making use of the Digital Lending Platforms to adhere to RBI’s extant Fair Practices Code (FPC) and Outsourcing Guidelines.  It had even warned that any violation by banks and NBFCs (including NBFCs registered to operate on ‘digital-only’ or on digital and brick-mortar channels of delivery of credit) will be viewed seriously.
 
Amidst reports of individuals/small businesses falling prey to growing number of unauthorised digital lending platforms/Mobile Apps on promises of getting loans in quick and hassle-free manner, the RBI again in December last year cautioned consumers never to share copies of KYC documents with unidentified persons, unverified/unauthorised Apps and they should report such Apps/Bank Account information associated with the Apps to concerned law enforcement agencies or use its Sachet portal (https://sachet.rbi.org.in) to file an on-line complaint.
 
RBI also mandated that digital lending platforms which are used on behalf of Banks and NBFCs should disclose name of the Bank(s) or NBFC(s) upfront to the customers.
 
An adverse impact of the global pandemic COVID-19 is that many economies world-wide have shrunk and unemployment is on the rise. Particularly, financial stress has hit the working population in distinct ways and India is no exception.
 
Various surveys undertaken have concluded that perhaps the worst affected are those in the low-income bracket. While the income of the mid-market segment was hit by 17% and the affluent segment's income suffered the least staying 10% below the pre-COVID levels, incomes of the mass-market or low-income segment (those with an income below ₹20,000) were hardest hit.
 
If reports are to be believed, an estimated 121 million people lost their jobs and close to 80 per cent of the working class in India, experienced loss of income. While some 70 million of these jobs recovered after the lockdown lifted, many were left with no money. Thanks to the Jan Dhan Yojana, a large share of the population have access to a savings account.
 
But for those whose financial condition had worsened, the made in China mobile loan apps seemed to be an easy option for many reasons. Such instant mobile apps promised short-term, collateral-free loans for between seven and 15 days. There are no lengthy paper work and everything was seemingly quite simple.
 
Although the loans also came in through rather swiftly, the borrowers were charged exceptionally high processing fees besides additional hidden charges along with a whopping 36 per cent interest which was deducted at the time of loan disbursal. To keep spiralling debt under control, many started taking such instant mobile loans from another app to repay an earlier loan.
 
With suicides reported in Telangana, Andhra Pradesh, Kerala, Karnataka, Tamil Nadu and Maharashtra linked to the instant mobile loan apps, when Police raided call centres run by the companies across multiple cities in India, it led to the arrest of at least 50 people including half a dozen Chinese nationals. It was found that the arrested persons were operating with impunity in contravention of the laws of the land. Some of the apprehended persons had arrived in India from China on a business visa nearly two years back and represented Chinese companies which owned some of the instant loan apps.
 
When Bengaluru police, acting on complaints of harassment by instant loan apps, raided a few micro finance companies, they busted a major online financial fraud involving theft of personal data of applicants by some micro finance companies.  From the seized laptops, mobile handsets and documents it was found that citizens of neighbouring countries were investors/directors and CEOs in such front-end firms.
 
Notably, such mobile apps were directly installed, accessed, used and monitored from cloud systems based in those countries and the personal data was used against the victims. Some loan apps have reportedly been downloaded more than 1,00,000 times, others more than ten million. Many loan apps also advertise within other apps thereby encouraging people to download their APK (Android application package), circumventing the Google Play Store entirely.
 
NFBCs doing lending business need to adopt RBI’s FPC, which among others entitles every customer of the right to transparency, besides fair and honest dealing. Notably, the Most Important Terms and Conditions should be clearly brought to the notice of the customer while offering the product. Importantly, every customer's personal information is to be treated as private and confidential, and, as a general rule, ought not to be disclosed to other companies for any purpose unless, the customer has authorized disclosure, it is compelled by law, it has a duty to the public to disclose i.e. in public interest, It is for a mandated business purpose such as disclosure of default to credit information companies or debt collection agencies.
 
Further, the KYC Guidelines of RBI shall be complied with and due diligence is to be carried out in order to ensure the repayment capacity of the borrowers. Field staff are to be trained so as to inculcate appropriate behaviour towards borrowers without adopting any abusive or coercive debt collection /recovery practices.
 
In the matter of recovery of loans, the NBFCs should not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans etc.
 
However, many of the fly-by-night financing companies, which owned several microloan apps, were a law unto themselves. They often forced users’ part with details of PAN, Aadhar and bank account number besides grant permission for accessing SMSes, call logs, camera and storage on their phone in order to get the loan sanctioned. They used fake SIM cards to call the customers.  
 
Recovery agents were nasty with men but in the case of women victims, they were fouler and sent voice messages threatening physical and sexual assault in case of default even by a day. As the date of repayment inched closer, collection agents would send reminder messages. When the loans weren’t repaid, they typically follow a three-stage system which depended on the number of days payment was delayed. People were grouped into three categories. If repayment was late by a day, the person will be called and asked to repay the loan. The harassment would get worse if there was further delay. In the next stage, family and friends would be contacted on phone or be added to a WhatsApp group where the person in debt is shamed followed with extortion and threats. This means that the recovery mechanism was a big time business as it requires a network of several persons to undertake the huge task.
 
But instances of such predatory loan apps have been reported in other countries as well. By and large, in some third world countries, students often borrowed from such loan apps and committed suicide after being publicly shamed. Some reports indicate that in some cases abroad, many women were even asked to share their nude pictures as collateral.
 
On January 14, according to a blog post published by Google, it had “reviewed hundreds of personal loan apps in India” based on reports from individuals and government agencies and said it had removed those that had violated its policies. It is unclear how many of such predatory mobile loan apps have been removed by Google.
 
Given how simple it is to set up a digital shop, it is not surprising there are so many apps. Instant loan mobile apps can pop up on Google play store with a different name and it is an onerous task to keep them at bay. Even though one can’t really blame the borrowers, who under financial stress, genuinely need the money for a personal emergency, it would be worthwhile to keep away from instant loan mobile apps.
 
Also, when it comes to offline financial transactions, it pays to read the fine print. Literally when people fail or don't read the fine print, it can lead to all kinds of avoidable problems. It needs to be understood that not every company is so generous and mischievous clauses tend to pop up from time to time. Better to be safe than feel sorry later.