The Rights of the Deceased: Moral Rights Incidental to Copyright Law
- Vanshika Agrawal
- 2024-04-25
Digital lending Apps
Author- Kuldeep Patel, Rani Durgavati University, Jabalpur
Nowadays if people need money then they do not have to ask for any bank or any one, today digitalization has happened so much that people have started getting money sitting at home and that too only through some app in play store.And crimes related to these are also increasing, so is it legal? and should people take money from these apps? and if not then? Why? Let's explain with cases related to this.
Dharanidhar Karimojji v. Union of India
2023 SCC Online Del 548
The case was decided by the High Court of Delhi on January 23, 2023. The court held that online lending apps that charge exorbitant interest rates and engage in unfair recovery practices are illegal. The court also directed the Reserve Bank of India to frame guidelines for fair recovery practices and transparency in loan terms and conditions.
Reserve Bank of India v. Paytm Payments Bank Ltd. and Ors. (2020)2 SCC 240
This case involved a challenge to the RBI's decision to classify Paytm Payments Bank Ltd. as a non-banking financial company (NBFC). The Supreme Court held that Paytm Payments Bank Ltd. was not an NBFC and that it was therefore not subject to the RBI's regulations for NBFCs. The Court also held that the RBI's decision to classify Paytm Payments Bank Ltd. as an NBFC was arbitrary and unreasonable.
Ajay Chauhan v. M/s Microloan India and Ors. 2022 SCC Online Del 310
This case involved a challenge to the terms and conditions of a loan agreement between a borrower and a digital lending app. The Delhi High Court held that the terms and conditions of the loan agreement were unfair and that the app had engaged in unfair recovery practices. The Court ordered the app to refund the borrower the excess interest and charges that had been collected.
State Bank of India v. M/s SKS Microfinance Ltd. and Ors SCC Online SC 465
This case involved a challenge to the high interest rates charged by microfinance institutions (MFIs). The Supreme Court held that the interest rates charged by MFIs were excessive and that they amounted to exploitation of poor borrowers. The Court directed the RBI to take steps to regulate the interest rates charged by MFIs.
Key point of these judgements:
Online lending apps must be regulated by the Reserve Bank of India.Online lending apps must disclose all fees and charges upfront to borrowers in a clear and transparent manner.
Online lending apps must not charge excessive interest rates or impose unfair terms on borrowers.Borrowers who have been wronged by online lending apps can seek redressal through the RBI's grievance redressal mechanism.
RBI GUIDELINES 2023
The guidelines explicitly state that digital lending apps cannot access mobile phone resources such as file and media, contact lists, call logs, telephone functions, etc. One-time access can be taken for camera, microphone, location or any other facility necessary for the purpose of onboarding/ KYC requirements only, with the explicit consent of the borrower.
The borrowers must be informed about the storage of customer data including the type of data that can be stored, the length of time for which data can be stored, restrictions on the use of data, data destruction protocol, standards for handling security breach, etc. The information must be provided on their website and the apps at all times.
At the time of disbursing the loans using digital apps, a key Fact Statement (KFS) to the borrower before the execution of the contract in a standardized format for all digital lending products.
The borrower must be informed about the all-inclusive cost of digital loans and should also be a part of the Key Fact Statement.
The penal interest/charges levied, if any, on the borrowers shall be based on the outstanding amount of the loan. Further, the rate of such penal charges shall be disclosed upfront on an annualized basis to the borrower in the Key Fact Statement.
Any fees charges etc. payable to lending service providers must be paid by the regulated entities and borrowers must not be charged for this.
The Key fact statement should contain
the details of the annual percentage rate, the recovery mechanism, details of grievance redressal officer designated specifically to deal with digital lending/FinTech-related matters and the cooling-off/ look-up period.
The cooling-off/look-up period is the amount of time given to the borrower for exiting digital loans, in case a borrower decides not to continue with the loan.
The information shall be sent to the borrowers on their verified email/SMS on the successful execution of loan contract/transaction.
The information must be sent on the letterhead of the regulated entity (bank) and must contain a Key Fact statement, a summary of loan product, sanction letter, terms and conditions, account statements, privacy policies of the LSPs/DLAs with respect to borrowers data, etc.
At the time of the sign-up/onboarding stage, information related to product features, loan limit and cost, etc., must be informed to the borrowers.
The banks, and NBFCs must publish the list of their digital lending apps, and lending service providers, engaged by them on their websites.
Any charges that are not mentioned in the Key Fact Statement are not chargeable to borrowers at any stage during the loan term.
The information shall be sent to the borrowers on their verified email/SMS on the successful execution of loan contract/transaction.
The information must be sent on the letterhead of the regulated entity (bank) and must contain a Key Fact statement, a summary of loan product, sanction letter, terms and conditions, account statements, privacy policies of the LSPs/DLAs with respect to borrowers data, etc.
At the time of the sign-up/onboarding stage, information related to product features, loan limit and cost, etc., must be informed to the borrowers.
The banks, and NBFCs must publish the list of their digital lending apps, and lending service providers, engaged by them on their websites
Details of nodal grievance redressal officer must be displayed on the websites of banks, NBFCs, lending service providers, digital lending apps and also on the key fact statement.
Digital lending apps and websites must
allow a borrower to lodge their complaint.If the complaint lodged by the borrower is not resolved within 30 days, then he/she can lodge a complaint on the Complaint Management System (CMS) portal under the Reserve Bank-Integrated Ombudsman Scheme (RB-IOS). For entities currently not covered under RB-IOS, a complaint may be lodged as per the grievance redressal mechanism prescribed by the Reserve Bank..
The banks, NBFCs must capture the economic profile of the borrowers covering (age, occupation, income, etc.), before extending any loan over their own Digital Lending Apps and/or through Lending Service Providers engaged by them, with a view to assessing the borrower’s creditworthiness in an auditable way.
There shall be no automatic increase in credit limit unless explicit consent of the borrower is taken on record for each such increase.
During the cooling-off/look-up period, the borrower shall be given an explicit option to exit the digital loan by paying the principal and the proportionate APR without any penalty during this period. The cooling-off period shall be determined by the Board of the bank, NBFC.
The period so determined shall not be less than three days for loans having tenor of seven days or more and one day for loans having tenor of less than seven days. For borrowers continuing with the loan even after look-up period, pre-payment shall continue to be allowed as per extant RBI guidelines.
option to give or deny consent for use of specific data, restrict disclosure to third parties, data retention, revoke consent already granted to collect personal data and if required, make the app delete/ forget the data.
Explicit consent of the borrower shall be taken before sharing personal information with any third party, except for cases where such sharing is required as per statutory or regulatory requirements.
The banks and NBFCs shall ensure that any lending done through their Digital Lending Apps and/or Digital Lending Apps of Lending Service Providers is reported to Credit Information Companies (such as CIBIL) irrespective of its nature/ tenor.
Any extension of structured digital lending products by banks, NBFC and/or Lending Service Providers engaged by them over a merchant platform involving short-term, unsecured/ secured credits or deferred payments, need to be reported to Credit Information Companies.
The regulated entities shall ensure that all loan servicing, repayment, etc., shall be executed by the borrower directly in the regulated entities’ bank account without any pass-through account/ pool account of any third party.
The disbursements shall always be made into the bank account of the borrower except for disbursals covered exclusively under statutory or regulatory mandate (of RBI or of any other regulator), flow of money between regulated entities for co-lending transactions and disbursals for specific end use, provided the loan is disbursed directly into the bank account of the end-beneficiary.
Regulated entities shall ensure that in no case, disbursal is made to a third-party account, including the accounts of Lending Service Providers and their Digital Lending Apps, except as provided for in these guidelines.
No biometric data is stored/ collected in the systems associated with the Digital Lending Apps of regulated entities / their Lending Service Providers unless allowed under extant statutory guidelines.
Refrence
1).Dharanidhar Karimojji v. Union of India
2023 SCC Online Del 548
2).Reserve Bank of India v. Paytm Payments Bank Ltd. and Ors. (2020)2 SCC 240
3).Ajay Chauhan v. M/s Microloan India and Ors. 2022 SCC Online Del 310
4).State Bank of India v. M/s SKS Microfinance Ltd. and Ors SCC Online SC 465
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