Tuesday, December 29, 2020

Digital Lenders Association of India Issues guideline for customers to identify unorganised and unreliable apps

Reiterates Responsible and Ethical Lending practices for DLAI members

December 29, 2020, Mumbai: The Digital Lenders Association of India (DLAI), established in 2016, comprises more than 85 member companies who provide digital lending or related services to the Nation. DLAI’s key objective is to ensure healthy growth and sustenance of digital lending ecosystem in India. 

Supported by Government’s Digital India mission and by Regulatory bodies, digital lenders have played a very important role in making financial services pervasive.

- DLAI members collectively serve more than [4] million borrowers in this country today. A very large number of these customers are first time borrowers.

- Last financial year, our members (with their registered NBFCs and Banks) have issued loans amounting to nearly INR 50,000 crores.

 All DLAI members are registered firms, governed by at least one regulatory body. Each firm therefore adheres to policies such as ‘privacy law’, ‘shop and establishment’ act etc.

In recent times, there have been reports about unethical practices of specific groups of companies who are completely different from lending companies that DLAI represents. 

These firms typically only have a mobile app as a consumer interface. In many cases police departments has been able to trace the origin of such APP based lenders to a individuals without any credentials.  They operate in a manner similar to the unorganised money-lenders and use collection malpractices, like blackmailing or misuse of personal information are linked to such firms.

DLAI has been working with its members and the regulatory bodies to control practices that are illegal or in anyways harmful to the customer. However, we have noticed many such apps have found loopholes in the systems and reach vulnerable customers, often in urgent need of money.

 As an industry body, we strongly condemn any such practices and want to make the customers aware of certain guidelines that can help them identify any such APP:

 1)   Minimal or No KYC: if the loan app is offering a loan without a background check, authenticity of their process is questionable. An app offering loans without KYC is comparable to an unorganised money lender and cannot be trusted.

 2)   Noticeably short tenure of the loan: any loan offered for less than 30 days is targeted at exploiting the urgency and vulnerability of a consumer.They typically charge a very high interest rate and equally high late fees. Consumer’s well-being is not their priority.

 3)   Loan agreement is not signed with an RBI registered entity: a customer must check the loan agreement parties. If the loan agreement is not with an RBI registered entity ( a simple google search can highlight that), indicates the process of the firm is not regulated and can prove to be dangerous if there is an issue.

 4) Very high upfront processing fees : similar to old money lenders, if the loan app has a very high processing fee/ upfront procedure fee, for e.g. approved loan amount is 5000 but the actual disbursal is 4000, it should be a red flag.

 5)   Re-payment / collection mechanism: does the app also offer an option of making digital re-payment? If not, the money flow is unaccounted for and should be a red flag as well. It also means the collection agent has a right to physically reach the consumer, which may lead to issues.

 6)   Late fees details and structure: dubious firms tend to hide or mis-represent the late fees applicable. They exploit the lack of knowledge / limited financial understanding of the customer to get a much higher return. For e.g. it has been brought to our notice that in some cases the late fees applicable by firms are as high as 1% per day. It is important for customers to take notice of not just applicable interest rate but also hidden charges.

7) Income / bureau verification is very easy: income verification is important to judge the repayment capacity of an individual and is also helpful for the customer in the long term. Any app not looking at income details/ or bureau  is encouraging debt trap and hence should be avoided. 

While it may not always be possible to cross check all the points given above, we at DLAI urge customers to make sure they cross-check at least 4-5 points mentioned above.  

We are committed to maintaining the trust of consumers by following right practices as well as controlling harmful practices in the country. We are constantly working with eco-system players to ensure fair practices.

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