Fintech lenders under scrutiny over recovery malpractices are facing tough time. A lot of cases of them harassing borrowers have been reported. But, there is another side to it. What about borrowers not returning money deliberately?
"A racket is going on in remote villages wherein they approach villagers and get them to borrow money from fintech start-ups. They ensure them they don't have to return the money. Fintech start-ups do not have wherewithal to recover small ticket size loans from remote areas. So, there are willful defaulters too," a CEO with an NBFC says on request of anonymity.
This is the other side of the coin. If recovery agents are harassing consumers in loan recovery then borrowers are taking advantage of easy money available to them. "Sure, there are bad apples among us. But, borrowers need to be more alert. They need to make sure they are borrowing money from a fintech associated with a regulated entity. Filling up loan agreement form with an RBI-registered entity and providing KYC details are important. If you are getting money quickly, there has to be something wrong with the source of it," says Anuj Kacker, Co-founder, MoneyTap.
Be mindful of what you share
Industry experts say the issues in loan recovery have persisted for a long time. What is different this time is an added layer of data privacy. "Borrowers must know to what extent they should share their data. Some apps do not follow any regulation. They ask for more than 30-35 permissions, and customers tend to say yes to everything. During pandemic those who needed money in desperation may have consented to everything. These apps extracted their data and used it against them," says Satyam Kumar, CEO & Co-Founder, LoanTap.
In fact, Amit Das, CEO and co-founder, Think360.ai - a parent company of alternate credit score firm Algo360 - confirms that they receive requests from fintech lenders for raw data of customers. "If we have access to SMS data, we only look at bank messages that give us a sense of salary credit and debit. We don't touch personal messages. Most importantly, we store the data anonymously. So, we tell them we can't do it," he says.
Das suggests borrowers to decline most of requests that the apps ask for. "There are only a few permissions that are absolutely necessary for an app to function. If you deny the others, the app will continue to work just fine," he says.
Interest rate and other charges
People living paycheck-to-paycheck may go dry during last few days of the months. Taking advantage of needy borrowers, some unscrupulous players offer them payday loans. Such loans are offered for a short tenure of say a week or so at around 1 per cent per day. On the face of it, the interest rate appears cheaper, but it is not on annual basis. They also charge high late fees. "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," says Digital Lenders Association of India in a note.
"Similar to old money lenders, if the loan app has a very high processing fee/upfront procedure fee, for example, approved loan amount is Rs 5,000 but the actual disbursal is Rs 4,000, it should be a red flag," it adds.
There may have been fintech platforms taking borrowers for a ride, but onus is on the borrowers too. Take loan with an intent to pay back, check the loan agreement parties, and be very alert about the data that you are sharing. "A simple Google search will tell you if an RBI-registered entity is involved in the lending process," says Kacker of MoneyTap.
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