RBI Announces Recommendations of Working group on Digital Lending

The Reserve Bank had constituted a Working Group on 'digital lending including lending through online platforms and mobile apps' (WGDL) on January 13, 2021. The report submitted by the WGDL was placed on the RBI website, inviting comments of stakeholders and members of the public. Taking into account the inputs received from diverse set of stakeholders, a regulatory framework to support orderly growth of credit delivery through digital lending methods while mitigating the regulatory concerns, has been firmed up. This regulatory framework is based on the principle that lending business can be carried out only by entities that are either regulated by the Reserve Bank or entities permitted to do so under any other law.

 

The Reserve Bank's regulatory framework is focused on the digital lending ecosystem of RBI's Regulated Entities (REs) and the Lending Service Providers (LSPs)3 engaged by them to extend various permissible credit facilitation services. In the above backdrop, RBI has examined the recommendations4 made by the WGDL. Recommendations accepted for immediate implementation and the consequent regulatory stance are enclosed as Annex-I. Certain highlights of the requirements being mandated to be followed by REs, their LSPs, Digital Lending Apps (DLAs)5 of REs, DLAs of LSPs engaged by REs, are as follows:

Customer Protection and Conduct Issues

All loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the RE without any pass-through/ pool account of the LSP or any third party.

Any fees, charges, etc., payable to LSPs in the credit intermediation process shall be paid directly by RE and not by the borrower.
A standardized Key Fact Statement (KFS) must be provided to the borrower before executing the loan contract.

All-inclusive cost of digital loans in the form of Annual Percentage Rate (APR)6 is required to be disclosed to the borrowers. APR shall also form part of KFS.

Automatic increase in credit limit without explicit consent of borrower is prohibited.

A cooling-off/ look-up period during which the borrowers can exit digital loans by paying the principal and the proportionate APR without any penalty shall be provided as part of the loan contract.

REs shall ensure that they and the LSPs engaged by them shall have a suitable nodal grievance redressal officer to deal with FinTech/ digital lending related complaints. Such grievance redressal officer shall also deal with complaints against their respective DLAs. The details of the Grievance redressal officer shall be prominently indicated on the website of the RE, its LSPs and on DLAs, as applicable.

As per extant RBI guidelines, if any complaint lodged by the borrower is not resolved by the RE within the stipulated period (currently 30 days), he/she can lodge a complaint under the Reserve Bank - Integrated Ombudsman Scheme (RB-IOS).

Technology and Data Requirements

Data collected by DLAs should be need based, should have clear audit trails and should be only done with prior explicit consent of the borrower.
Option may be provided for borrowers to accept or deny consent for use of specific data, including option to revoke previously granted consent, besides option to delete the data collected from borrowers by the DLAs/ LSPs.

Regulatory Framework

Any lending sourced through DLAs (either of the RE or of the LSP engaged by RE) is required to be reported to Credit Information Companies (CICs) by REs irrespective of its nature or tenor. All new digital lending products extended by REs over merchant platforms involving short term credit or deferred payments are required to be reported to CICs by the REs.

All the regulated entities of RBI are advised to be guided by the regulatory stance conveyed in this press release. It shall be noted that any kind of outsourcing arrangement involving a RE and LSPs/DLAs shall be subject to the extant guidelines on outsourcing.

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