Deadline to comply with digital lending norms ends today — Check new rules here

The deadline to abide by new digital lending norms for the entities will end on November 30, 2022. In order to ensure a smooth transition, the Reserve Bank of India (RBI) gave this timeline to regulated entities to put in place adequate systems and processes to ensure that ‘digital loans’ are in compliance with the latest regulations.

The central bank earlier advised all banks and non-banks that all instructions contained in the digital lending circular would apply to existing customers availing fresh loans, and to new customers getting onboarded. The regulator reiterated that it was the duty of banks and non-bank lenders to ensure that its outsourcing partners adhered to the rules.

Recently, innovative methods of designing and delivery of credit products and their servicing through the digital lending route have acquired prominence. However, certain concerns have also emerged which, if not mitigated, may erode the confidence of members of the public in the digital lending ecosystem.

The concerns primarily relate to the unbridled engagement of third parties, mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, and unethical recovery practices.

Against this background, the RBI constituted a regulatory framework to support the orderly growth of credit delivery through digital lending methods while mitigating regulatory concerns.

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.

RBI's recent guidelines on digital lending are not only to safeguard customers’ rights but they are aimed to establish a more fruitful financial landscape in the digital world.

All loan disbursals and repayments are required to be executed only between the bank accounts of the borrower and the regulated entities without any pass-through/pool account of the lending service provider (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, RBI said.

The 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 officers 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.

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)7.

Data collected by digital lending apps (DLAs) should be need-based, should have clear audit trails and should be only done with the prior explicit consent of the borrower.

Option may be provided for borrowers to accept or deny the consent for use of specific data, including an option to revoke previously granted consent, besides the option to delete the data collected from borrowers by the DLAs/ LSPs.

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, as per RBI.