New rules needed to stop predatory lending
The recent suicide of a Hyderabad-based technician who was humiliated when a lender started calling people on his contact list, the consent he had given when taking that loan through an app, put in evidence the risks of application-based loan in India. The country has long been deprived of credit, and despite efforts to increase bank efficiency levels, our formal lending structure remains too cumbersome, time-consuming and expensive to meet the large evident demand for small instant unsecured loans. . Online businesses have spotted a great opportunity in this space and have gone out of their way to reach underserved customers. But this growth has been largely haphazard, while Indian regulators and lawmakers have tended to pay attention only to rampant market failures that could end up destroying markets, choice and innovation. The inappropriate tactics used by lenders to collect their dues exemplify a failure that can no longer be ignored. We need much stricter regulation of all of these practices.
In July 2020, the Reserve Bank of India (RBI) established rules designed to reduce opacity and violation of existing lending standards by digital lenders, but these have done little to improve things on the ground, where lenders often ask for and get the records. numbers of borrowers that they do not have. right to. Clearly, the RBI’s stated intention to take violations “seriously” has not been taken seriously enough by the market. It is not just India’s problem. Other countries are also taking steps to put in place rules for digital lending. In 2017, Chinese regulators had to impose restrictions after a scandal arose from personal images used to humiliate borrowers into paying off loans they couldn’t afford. In Kenya, its central bank has severely cracked down on predatory rates and clawback practices. India needs a policy solution that neither kill this nascent market – which addresses a very real need for quick and painless loans to help people out for short periods of time – nor dampen the innovation buzz in the fintech sector. country, but is able to institute personal data and privacy protections that prevent predatory retrieval practices.
Adopting an account aggregator model would help by enabling the use of conditional consent, with standardized expiration dates for data and other such security limits built into loan terms. But the full deployment of such systems will take some time. In the meantime, we need provisions that provide borrowers with reliable information on what exactly they are signing up for, who the lender is, and whether that entity can be sued for sky-high rates and collection methods. For its part, the Digital Lenders’ Association of India is expected to create a certification system based on self-regulation, so borrowers can assess who might behave better in an industry that claims to have made loans over $ 150 billion. . As for people who benefit from app loans, they must exercise discretion about what data they are parting with. They must recognize the folly of entrusting their entire digital life to an app. In a geopolitically charged era like these, invasive Chinese apps could well be part of phishing expeditions. There are also unscrupulous domestic operators to be wary of. An entire ecosystem had sprung up in Jamtara district in Jharkhand, for example, to trap and defraud Indians online. All in all, no matter how acute the need for a loan is, no one in India should have the nerve to demand a pound of flesh, digital or otherwise.
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