Only those instant loan apps that are regulated by the Reserve Bank of India (RBI) are allowed on app stores, according to the Ministry of Finance's written reply in Rajya Sabha on Tuesday, 7 February.
"The RBI has shared with the Ministry of Electronics and Information Technology (MeitY) a list of DLAs being used by its regulated entities. MeitY also shared this list with app stores and has asked the platforms to host only those on the list," Union Minister of State (MoS) for Finance Dr Bhagwat Kisanrao Karad said in his response to Rajya Sabha MPs Syed Nasir Hussain and Dr Amee Yajnik.
This comes on the heels of MeitY reportedly blocking over 94 instant loan apps for indulging in “improper data storage and transfer” to other countries and money laundering activities.
Probe agencies have found that many digital lending apps offer instant loans up to Rs 10,000 to be repaid within seven days or more. Several borrowers have complained about representatives of such apps blackmailing them if they miss the date of repayment, according to Business Standard.
But what makes such apps popular? And why do people fall prey to them? Read on.
Instant Loan Apps: Centre Looks To Weed Out Bad Apples, Here's Why
1. What Draws People to Instant Loan Apps?
The main appeal of these apps lies in how flexible they appear to be.
When you think about applying for a loan from a bank, for instance, you automatically think about the bulk of paperwork that is required in order to obtain one.
But in the case of these apps, access to credit is easy for those who need money urgently and on easy repayment terms.
Such apps use lines like 'Get personal loan in minimum time with minimum documentation' to attract people. They are increasingly becoming popular among users from the middle-income demographic.
Expand2. When Do Things Turn Ugly for Borrowers?
Sanjana (name changed) is someone who learnt about the alleged predatory tactics of instant loan apps through the hard way.
Speaking to The Quint, Sanjana said that she had applied for a loan (of Rs 3,000) from Large Taka, an instant loan app that's no longer available on Google Play Store. She said that she was asked to upload details of her Aadhaar card, PAN card, and provide phone numbers of friends and family in order for the loan to be disbursed.
Sanjana said that she received a call from an unknown number in the middle of a workday last month. She claimed that the caller gruffly told her that she would have to repay her loan within two hours or else it would lead to "severe consequences."
"Within a day of the application, Rs 1,800 was disbursed. Then about week later, I got the call asking me to repay Rs 3,200 within two hours as it was the 'rule' or I would have to face consequences. I don't remember seeing any such condition while applying for the loan," Sanjana said.
"When I told them I would repay them after two days since it was the month end, they started abusing me using obscene words and it continued over the next week. They morphed my face onto an obscene photo and threatened to send it to my family and friends who were on my contact list," Sanjana told The Quint.
"When I did not answer their messages and calls, they contacted my friend and started disturbing her as well," she added.
Sanjana also said that she registered a complaint with the cyber crime unit, after which the calls and messages stopped to a great extent.
Her plight is not uncommon. On social media, thousands of users have detailed how they are harassed by "loan recovery agents."
Expand3. Do Victims Have Any Legal Recourse?
Between 1 April and 30 November last year, 12,903 complaints were received against banks and non-banking financial companies (NBFCs) over harassment by recovery agents who claim to be working for digital lending apps, as per the latest available data.
Advocate Avinash Kashyap, who has been approached by over 50 such victims for legal advice, said that these agents do not stop no matter what.
"These apps trap people. They demand very few documents and instead seek permissions such as access to call logs, access to other numbers saved on borrowers’ devices, and the detailed terms and conditions go unnoticed," Kashyap told The Quint.
"In one particular instance where the parents of a young man approached me for advice, the loan recovery agent had harassed the man so much that he ended up killing himself. But even after his death, the loan recovery agents kept harassing his parents and were so heartless that they asked for a death certficate from his parents as they thought the parents were lying," he added.
There have been several other reports of people committing suicide because of harassment by "loan recovery agents."
(If you feel suicidal or know someone in distress, please reach out to them with kindness and call these numbers of local emergency services, helplines, and mental health NGOs)
Expand4. What Is the RBI Doing About Predatory Loan Apps?
The finance ministry said in Parliament that the central bank has also issued a master circular, under which banks and financial centres have been advised to follow certain customer identification procedures for opening of accounts and monitoring transactions of suspicious nature to avoid its misuse for money laundering.
Further, the RBI had issued digital lending guidelines in September 2022, which advises measures, including due diligence of loan service providers (LSPs), direct disbursal of loan from bank account of lender to bank account of the borrower without any pass-through/pool or third-party account to avoid layering, publishing of the list of DLAs and LSPs engaged by REs and details of activities to avoid anonymity.
In 2021, the RBI constituted a working group on digital lending, including lending through online platforms and mobile apps, to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players.
The working group said in a report that a majority of complaints were about lending apps promoted by entities not regulated by the RBI.
The report had also flagged major concerns related to issues of mis-selling, breach of data privacy, charging of exorbitant interest rates, intrusive method of recovery, lack of transparency, and lack of grievance redressal mechanism.
Last month, the government informed Parliament that the RBI had also issued advisories to state governments to keep a check on "unauthorised digital lending platforms and mobile apps through their respective law enforcement agencies."
Expand5. What Action Has Been Taken by the Government?
Besides 138 betting and gambling apps as well as websites, over 94 loan apps were blocked by MeitY recently under section 69(A) of the IT Act, Hindustan Times reported.
This is the first time the government has moved to ban quick-loan apps with Chinese links. Most of these apps, the report said, had Indians working there as employees and directors.
PayU’s LazyPay and Kissht are among the non-Chinese apps that have reportedly found mention in the blocking order. While PayU is owned by South African and Dutch group Naspers, Chinese conglomerate Fosun used to own more than 17 percent stake in Kissht but later divested its stake to various Singapore government funds.
(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)
Expand
What Draws People to Instant Loan Apps?
The main appeal of these apps lies in how flexible they appear to be.
When you think about applying for a loan from a bank, for instance, you automatically think about the bulk of paperwork that is required in order to obtain one.
But in the case of these apps, access to credit is easy for those who need money urgently and on easy repayment terms.
Such apps use lines like 'Get personal loan in minimum time with minimum documentation' to attract people. They are increasingly becoming popular among users from the middle-income demographic.
When Do Things Turn Ugly for Borrowers?
Sanjana (name changed) is someone who learnt about the alleged predatory tactics of instant loan apps through the hard way.
Speaking to The Quint, Sanjana said that she had applied for a loan (of Rs 3,000) from Large Taka, an instant loan app that's no longer available on Google Play Store. She said that she was asked to upload details of her Aadhaar card, PAN card, and provide phone numbers of friends and family in order for the loan to be disbursed.
Sanjana said that she received a call from an unknown number in the middle of a workday last month. She claimed that the caller gruffly told her that she would have to repay her loan within two hours or else it would lead to "severe consequences."
"Within a day of the application, Rs 1,800 was disbursed. Then about week later, I got the call asking me to repay Rs 3,200 within two hours as it was the 'rule' or I would have to face consequences. I don't remember seeing any such condition while applying for the loan," Sanjana said.
"When I told them I would repay them after two days since it was the month end, they started abusing me using obscene words and it continued over the next week. They morphed my face onto an obscene photo and threatened to send it to my family and friends who were on my contact list," Sanjana told The Quint.
"When I did not answer their messages and calls, they contacted my friend and started disturbing her as well," she added.
Sanjana also said that she registered a complaint with the cyber crime unit, after which the calls and messages stopped to a great extent.
Her plight is not uncommon. On social media, thousands of users have detailed how they are harassed by "loan recovery agents."
Do Victims Have Any Legal Recourse?
Between 1 April and 30 November last year, 12,903 complaints were received against banks and non-banking financial companies (NBFCs) over harassment by recovery agents who claim to be working for digital lending apps, as per the latest available data.
Advocate Avinash Kashyap, who has been approached by over 50 such victims for legal advice, said that these agents do not stop no matter what.
"These apps trap people. They demand very few documents and instead seek permissions such as access to call logs, access to other numbers saved on borrowers’ devices, and the detailed terms and conditions go unnoticed," Kashyap told The Quint.
"In one particular instance where the parents of a young man approached me for advice, the loan recovery agent had harassed the man so much that he ended up killing himself. But even after his death, the loan recovery agents kept harassing his parents and were so heartless that they asked for a death certficate from his parents as they thought the parents were lying," he added.
There have been several other reports of people committing suicide because of harassment by "loan recovery agents."
(If you feel suicidal or know someone in distress, please reach out to them with kindness and call these numbers of local emergency services, helplines, and mental health NGOs)
What Is the RBI Doing About Predatory Loan Apps?
The finance ministry said in Parliament that the central bank has also issued a master circular, under which banks and financial centres have been advised to follow certain customer identification procedures for opening of accounts and monitoring transactions of suspicious nature to avoid its misuse for money laundering.
Further, the RBI had issued digital lending guidelines in September 2022, which advises measures, including due diligence of loan service providers (LSPs), direct disbursal of loan from bank account of lender to bank account of the borrower without any pass-through/pool or third-party account to avoid layering, publishing of the list of DLAs and LSPs engaged by REs and details of activities to avoid anonymity.
In 2021, the RBI constituted a working group on digital lending, including lending through online platforms and mobile apps, to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players.
The working group said in a report that a majority of complaints were about lending apps promoted by entities not regulated by the RBI.
The report had also flagged major concerns related to issues of mis-selling, breach of data privacy, charging of exorbitant interest rates, intrusive method of recovery, lack of transparency, and lack of grievance redressal mechanism.
Last month, the government informed Parliament that the RBI had also issued advisories to state governments to keep a check on "unauthorised digital lending platforms and mobile apps through their respective law enforcement agencies."
What Action Has Been Taken by the Government?
Besides 138 betting and gambling apps as well as websites, over 94 loan apps were blocked by MeitY recently under section 69(A) of the IT Act, Hindustan Times reported.
This is the first time the government has moved to ban quick-loan apps with Chinese links. Most of these apps, the report said, had Indians working there as employees and directors.
PayU’s LazyPay and Kissht are among the non-Chinese apps that have reportedly found mention in the blocking order. While PayU is owned by South African and Dutch group Naspers, Chinese conglomerate Fosun used to own more than 17 percent stake in Kissht but later divested its stake to various Singapore government funds.
(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)