The framework is based on the belief that only organizations that are either governed by a central bank or legally authorized to do so can engage in lending activities.
“The Reserve Bank has encouraged innovation in the financial system, products and credit delivery methods, while ensuring their orderly development, while maintaining financial stability and protecting the interests of depositors and customers. Recently, Innovative methods of designing and distributing credit products and servicing them through the Digital Lending2 Route have gained prominence.However, there have been some concerns which, if not allayed, have increased the confidence of members of the public in the digital lending ecosystem. may be less.
The RBI notification, issued on August 10, 2022, said the concern primarily pertains to unbridled third party affiliations, mis-selling, data privacy violations, unfair business practices, charging exorbitant interest rates and unethical recovery practices.
Following are the requirements that digital lending institutions are required to comply with with regard to customer protection and handling of issues as per RBI notification.
1. All loan disbursement and repayment needs to be executed only between the borrower’s bank accounts and the RE without LSP or any third party pass-through/pool account.
2. Any fees, charges etc. payable to the LSP in the credit arbitration process shall be paid directly by the RE and not by the borrower.
3. A standardized Key Facts Statement (KFS) should be provided to the borrower before the loan contract is executed.
4. All inclusive cost of digital loan Must be disclosed as Annual Percentage Rate (APR)6 borrowers, APR will also form part of KFS.
5. Automatic increase in credit limit without explicit consent of the borrower is prohibited.
6. A cooling-off / look-up period during which borrowers can exit the digital loan by paying the principal amount and without any penalty will be provided as part of the proportionate APR loan contract.
7. REs shall ensure that they and the LSPs appointed by them have a suitable Nodal Grievance Redressal Officer to deal with the complaints regarding FinTech/Digital credit. Such Grievance Redressal Officers will also deal with complaints against their respective DLAs. The details of the Grievance Redressal Officer will be prominently displayed on the website of the RE, its LSP and DLA, as applicable.
8. 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 can file a complaint under Reserve Bank – Int.
Integrated Ombudsman Scheme (RB-IOS).