Digital lending: RBI working group recommends separate law to prevent illegal digital lending activities

The sudden mushrooming of digital lending apps and other modes has forced the Reserve Bank of India (RBI) to look at the entire ecosystem of lending which included banks, NBFCs, technology companies and other entities. The RBI appointed working group has recommended the following suggestions for customer protection:

1. Subjecting the digital lending apps to a verification process by a nodal agency to be setup in consultation with stakeholders.

2. Setting up of a Self-Regulatory Organisation (SRO) covering the participants in the digital lending ecosystem.

3. A separate legislation to prevent illegal digital lending activities.

4. Development of certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions.

5. Disbursement of loans directly into the bank accounts of borrowers; disbursement and servicing of loans only through bank accounts of the digital lenders.

6. Data collection with prior and explicit consent of borrowers with verifiable audit trails.

7. All data to be stored in servers located in India.

8. Algorithmic features used in digital lending to be documented to ensure necessary transparency.

9. Each digital lender to provide a key fact statement in a standardised format including the Annual Percentage Rate.

10. Use of unsolicited commercial communications for digital loans to be governed by a Code of Conduct to be put in place by the proposed SRO.

11. Maintenance of a ‘negative list’ of Lending Service Providers by the proposed SRO.

12. Standardised code of conduct for recovery to be framed by the proposed SRO in consultation with RBI.

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