RBI Proposes New Laws to Regulate Digital Lending

By 03/01/2022March 8th, 2022No Comments
rbi proposes new law to regulate digital lending

RBI Proposes New Laws to Regulate Digital Lending

Once again, RBI has stepped up to protect the interests of the consumers, who in pursuit of excess money were preyed on by wealth-mongering organizations on various apps. In order to effectively safeguard the interest of the customers, the Reserve Bank working group has strongly and emphatically suggested the enactment of separate legislation. The legislation has been propped to strategically prevent illegal digital lending through apps of which innocent customers were victims.

It is no news that get-rich easy schemes are scams. With the involvement of Indian citizens in the same, leading to suicides, the RBI has come in to attack the loan sharks. It has emphatically suggested that digital lending apps should be thoroughly scrutinized and verified by a nodal agency.

This should lead to the establishment of a Self-Regulatory Organization that will effectively and positively cover the participants in the digital lending ecosystem.

Thus, one can state that RBI’s recent steps will help in enhancing customer protection and experience, protecting them from a digital or monetary felony, consequentially making the digital lending ecosystem safe. This will also promote healthy innovation in the digital lending system.

But here it is mandatory to mention that, at the moment, taking down all the apps from Appstore is only a temporary and a preventive measure to mitigate the disaster. The verification of the same should be a top priority for the apex bank.

It is to be noted that under the guidance of RBI, the working group has been set up in the backdrop of business conduct and customer protection concerns that are arising out of the spurt in digital lending activities, which really found momentum during the pandemic.

The case

But the aforementioned details, including RBI’s involvement, raise questions about the nature and motives of the customers to get involved in business with such scandalous groups on the apps? It is to be noted that the motivation for such an activity was the pandemic which has excessively curtailed the financial and monetary standing of the middle-class society in India.

rbi working group on digital lending

With curtailed earnings, increased healthcare expenses, and inflation, easy loans were found tantalizing. This led to a full-fledged affair with the fraudulent loan apps that provided easy loans with high interest. With higher interests and lower-income, people tuned to excessive steps like suicide and self-harm.

This emphatically led the RBI to get involved in the loan app fiasco and formulation of recommendations to mitigate the disaster.

Among other things, it is to be noted that the group also suggested the development of certain baseline technology standards. These standards will have to be adhered to as a pre-condition for offering digital lending solutions.

In order to counter the blackmailing aspect of the fiasco which gave the loan app companies leverage over the consumers in turning the public into an easy target, the RBI has recommended that data collection with the prior and explicit consent of borrowers should emphatically have verifiable audit trails.

In addition to having a verifiable audit trail, the data should also be stored in servers located in India. Data privacy has long needed attention in India, given the fact that India doesn’t have standard and well-crafted rules and regulations for the same.

Further, in order to impactfully curtail the unsolicited commercial communications for digital loans, the committee has also strategically advised the same to be governed by a Code of Conduct to be put in place.

rbi digital lendingThe whole loan app debacle brings to the forefront the need for transparency, better data privacy laws, and a strong vigilance mechanism by the RBI to protect the interest of the public which is currently quite susceptible to harm financially and monetarily.

With the pandemic curtailing financial freedom, it is quite a prevalent possibility that people will ultimately turn to dubious, surreptitious modes to accelerate their wealth. Thus, the need for effective governance and vigilance is the need of the hour. This can be effectively achieved through algorithmic features that are used in digital lending which will help ensure necessary transparency.

What greater attention to the loan apps fiasco is the fact that digital penetration in India is on the rise. Thus, laws to govern the same should be on the trajectory of implementation too. But given the state of data privacy and consumer protection laws, in the country, India has a long way to go. One can certainly state that the recent fraudulent disaster can help provide impetus to the process and safeguard the interest of the consumers.

It is mandatory to be mentioned here that in order to make digital lending a promising reality in India, the authorities will have to with the trust of the citizens, who are rather cynical about the process. Thus, the recent case can be a good start.

With the Reserve Bank constituting the Working Group (WG) on digital lending on to emphatically study all the aspects of digital lending activities in the regulated financial sector as well as by unregulated players in order to put an appropriate regulatory approach in place, one can positively state that future trust-building between the authorities and the citizens is on the rise.


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