Businesses and consumers in India are being warned to avoid using illegal loan apps, which may on the face of it offer attractive terms and conditions but actually rip off customers with excessive fees and other hidden extras.
In January and February of this year, a Reserve Bank of India (RBI) working group found that about 600 of the 1,100 apps hosted on various stores were illegal. They are widely known as ‘Chinese loan apps’ because they originate from that country.
To counter the problem, the RBI has prepared a ‘white list’ of legal apps. The aim to make ensure only these approved apps are available on app stores, with the Ministry of Electronics & Information Technology given the responsibility of enforcing the new rules.
The RBI said the illegal loan apps lure potential victims with the promise of easy loans. They then charge high interest rates, high processing fees, and sometimes other hidden charges. Borrowers who fail to repay their dues on time face huge penalties and also harassment. In some cases the operators of these apps have even been known to steal contacts and other details from customers’ phones, which they then use to blackmail borrowers.
Cybersecurity experts are advising those seeking a loan via an app should check to see that it is bona fide.
OneSpan’s Pinakin Dave said: “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.”
Dave added: “Borrowers should also steer clear of apps that ask for advance payments. Legitimate apps will never do that.”
And Sugandh Saxena, CEO of Fintech Association for Consumer Empowerment (FACE), warned users to be wary if the app seeks personal data, he said. He explained: “Be warned if, after you have downloaded the loan app, it asks for permission to access your contacts and photo gallery.”
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.
Before downloading an app, check its antecedents. “Verify the partnership between the regulated entity (RE) and the lending app. This can be done by visiting the website of the lender mentioned on the app. If the RE’s website doesn’t mention the name of that app, don’t proceed,” said FACE’s Saxena.
Install security software
“Customers should install trusted malware software on their devices and keep them updated,” said Pinakin Dave. And download apps only from trusted sources, including Google Play Store or Apple Store, he said.
Borrowers who have taken a loan via an illegal app and are being harassed by its recovery agents should lodge a complaint. “Immediately file a complaint at the nearest police station and the cyber cell of the police for redressal,” said Saxena. Taking legal recourse, however, could be time consuming and expensive.
“Recovering any money paid to a loan app will require a long and arduous process through the civil or consumer courts. Although criminal proceedings may bring the operators to justice, customers may not always be able to recover their losses,” says Swaminathan.
If you need emergency funds, there are other loan avenues you can try, said Swaminathan. “Try to get an instant personal loan from a bank or avail a secured loan such as a gold loan. Personal loans can be approved in less than a day. Gold loans are also disbursed fast.”
The RBI has outlined some key checks you/your clients should do before committing to a loan. They are:
- Stick to apps that do ‘know your customer’ (KYC) and ask for proof of income.
- The sanction letter given by the app should contain the name of the bank or lender at the back end.
- It should also mention the loan amount, the rate of interest, and the processing fee.
- Go through the loan agreement provided by the digital lender before taking the loan.
- Make sure that you receive direct communication from the bank/NBFC.