Government issues warning about illegal loan apps

Businesses and consumers have filed almost 13,000 complaints against banks and non-banking finance companies (NBFCs) since April 2021 about their digital lending apps, including harassment by recovery agents.

The grievances were made during the past 19 months (April 2021-November 2022) to the Reserve Bank of India (RBI), according to Bhagwat Karad, Minister of State at the Ministry of Finance.

He said: “According to RBI… as many as 12,903 complaints have been received against banks and NBFCs pertaining to digital lending applications/apps and against recovery agents/harassment by recovery agents under the Integrated Ombudsman Scheme of RBI.”

RBI launched the Integrated Ombudsman Scheme in 2021, giving the ombudsman the power to compensate complainants for any losses suffered up to the value of Rs 20 lakh (£20,000), plus up to Rs 1 lakh (£1,000) for their time, expenses incurred and for harassment and mental distress.

During the pandemic, the RBI was made aware of incidents of borrowers being harassed by digital lenders, some of them charging exorbitant interest rates, the minister said.

In light of this, RBI issued a statement warning the public not to sign up with unauthorised digital lending platforms or apps advertising quick, hassle-free loans.

Research by the central bank also found that most of the complaints were about lenders that were not regulated by RBI, including unincorporated bodies and individuals.

The findings prompted the RBI came up with digital lending guidelines, tightening the rules for such lenders while enhancing customer protection.

Karad said: “Further, RBI’s Department of Supervision has been designated as the… department for dealing with complaints against unauthorised digital lending platform/mobile apps, and a mechanism to handle specific references to unauthorised digital lending platforms/mobile apps has been laid down.”

RBI has also set up a portal, called ‘Sachet’, through which complaints against lending apps not regulated by RBI are sent to the Registrar of Companies for Ministry of Corporate Affairs, and to the Economic Offences Wing of the complainant’s State for unincorporated bodies and individuals.

 

Central bank issues guidance

At the start of 2022, an RBI working group found that about 600 of the 1,100 apps hosted on various online stores were illegal. In response the RBI created a ‘white list’ of legal apps, and only apps on this list should be made available on app stores.

It also issued guidance to businesses and consumers, warning them to steer clear of apps offering quick loans at what appears to be favourable rates of interest.

Pinakin Dave, a manager at cyber security specialist OneSpan, commented at the time the guidance was issued: “Check whether the loan app is registered with the RBI. If it does not have a registered, secure website and a physical address, chances are that it is a fraudulent app.”

Another warning sign is when the lender requests access to a borrower’s phone, for example to access details of their contacts or photo library. “Fraudsters use these extra permissions to extract data from users, which they then use to blackmail them later,” said Dave.

Fraudulent loan apps try to tempt borrowers by asking for very few documents, which makes them attractive to those looking for a quick loan. “Avoid a loan from an app that doesn’t ask for documents to verify your credentials. Also, genuine lenders will look into your payment history and credit score to determine your repayment capability, and also to decide the interest rate they should charge. If a loan app doesn’t ask for your credit history, it could be a fraudulent entity,” says V Swaminathan, executive chairman, Andromeda Loans and Apnaipaisa.com.

Borrowers should also steer clear of apps that ask for advance payments. “Legitimate apps will never do that,” said Dave.

He added: “Customers should install trusted malware software on their devices and keep them updated.” Also, download apps only from trusted sources, including Google Play Store or Apple Store, he said.

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