InvestorQ : What are some of the key highlights of the digital lending regulations announced by the RBI during the previous week? How will it help?
Sam Eswaran made post

What are some of the key highlights of the digital lending regulations announced by the RBI during the previous week? How will it help?

Moii Chavate answered.
2 months ago

Last week, the RBI put out detailed guidelines for digital lenders, mostly the fintech firms that give out loans over the internet based on a purely fintech model. Here are some of the highlights of the announcement.

· It must be remembered that while the digital lending rules are elaborate, they are just work in progress and will evolve in the coming days. However, the broad framework has been outlined by the RBI.

· The most important thing done in the digital lending regulations is to clearly demarcate the relationships. For example, the lending fintech or the regulated entity (RE) must directly interact with the borrowers and with the agents who bring in the business.

· That effectively means that loan disbursal and loan repayments must be directly be between the lender and the borrower only. Also, no commission will be paid to the agents directly by the customers and all such commissions can only be paid directly by the RE to the agents.

· In terms of its ambit coverage, the digital lending regulations will broadly cover both the digital lenders or the RE as well as the agents who bring in the customers for the RE. This will be restricted to the digital lenders currently regulated by the RBI only.

· An important purpose of this regulation is to avoid the mis-selling challenge. Unfortunately, despite being exhorted, the small borrowers do not read the fine print of the contract which is where a lot of sticky clauses are hidden. To overcome this problem, RBI has insisted that the RE create a capsule KFS of the key terms and conditions.

· A debatable issue in such loans is the rate of interest charged, which is often mis-represented. RBI has clarified that APR or the annual percentage rate must be disclosed to the borrower along with the relevant calculations, so that the borrower can take a more informed and intelligent decision.

· An important aspect of this regulation is the consent of the borrower. To avoid random actions, RBI has stipulated that consent of the borrower would be mandatory in case of automatic increase in credit limit of the borrower. Many borrowers tend to get pulled into a debt trap without being aware of it. Hence consent is mandatory.

· An important part of the regulation is to seek consent on storage and usage of customer data. The digital lender can only store the data of the customer to the extent that is required for the transaction. Any additional data to be collected must only be with the consent of borrowers and they have a choice to refuse..