Buying iPhone 17: RBI proposes rules to allow lenders to remotely lock smartphones for EMI defaults

The Reserve Bank of India (RBI) is preparing to introduce a revised Fair Practices Code to regulate lenders' ability to remotely lock smartphones purchased on equated monthly instalments (EMIs) when borrowers default. The new regulations, expected soon, address concerns over loan recovery in the fast-growing consumer electronics finance sector, where non-bank lenders now dominate. The proposal would require lenders to gain explicit consent from borrowers, ensure transparency about non-payment consequences, and strictly prohibit access to personal data on locked devices. Critics warn that enabling device lockouts could impact borrowers' livelihoods and access to essential services, raising broader social implications.

Regulatory changes

The RBI's proposed regulations mark a significant shift in India's approach to consumer finance, focusing on premium smartphones from brands such as Apple, Samsung, and Google. The central bank aims to counter rising levels of bad debt by empowering lenders to lock devices remotely if EMI payments are missed. Non-bank lenders, who now account for the majority of such loans, support measures expected to reduce default rates and improve recovery.

Transparency for borrowers

Under the draft guidelines, lenders will be obligated to obtain explicit, prior consent from borrowers before extending loans that include the right to lock the device. Lenders must also ensure customers are fully informed about the consequences of missed payments at the time the agreement is signed, promoting greater transparency.

Stringent privacy protections

To address privacy concerns, the RBI's regulations will strictly prohibit lenders from accessing any personal data on a locked device. The central bank seeks to balance effective loan recovery with protection of consumer privacy, acknowledging the sensitivity of information stored on smartphones.

Consumer electronics financing

India has witnessed a surge in consumer financing for smartphones, driven by easy EMI offerings. This has boosted premium device sales, but also increased default rates, challenging lenders’ ability to recover dues. By introducing the option to lock devices, the RBI and lenders aim to incentivise timely payments and improve loan portfolios.

For lenders, the RBI's proposal offers an opportunity to strengthen recovery mechanisms and potentially extend credit to a broader array of consumers, including those with limited or poor credit histories. Improved enforcement could reduce risk and increase confidence in offering small-ticket loans for high-value electronics.

Nevertheless, consumer advocates have expressed strong reservations about the RBI's move. Srikanth L., founder of CashlessConsumer, told the Financial Express: “This practice weaponizes access to essential technology to enforce behavioural compliance, locking users out of livelihoods, education, and financial services until repayment.” Critics argue that making access to digital tools contingent on repayment can have far-reaching social and economic impacts.