Application-based personal loans, which turn out to be deadly traps, have long gone unnoticed as they fall outside of Reserve Bank of India (RBI) regulation.
But as the predatory nature of these apps is exposed, there is a growing call to regulate them.
the The Delhi High Court has called for answers from the Union government and the RBI in a public interest dispute to regulate online lending platforms.
Petitioner Dharanidhar Karimojji said that at present there is no uniform law to regulate online digital lending platforms or cap the maximum interest rate or other charges levied by lenders in line.
As a result, digital lending companies exploit borrowers by charging very high interest on loans – even 365% per year, and harassing them for default.
Lawyer Prashant Bhushan, representing the petitioner, told the court that these entities posed a threat and even the RBI issued a press briefing warning the general public against these platforms.
Besides seeking guidelines to regulate online lending platforms, the petitioner also called for the establishment of a grievance mechanism for borrowers., to resolve issues they face with online digital lending application operators or their agents.
The development came a day after tech giant Google said it had removed several of these apps from its Play Store.
“We have reviewed hundreds of personal loan applications in India, based on metrics submitted by users and government agencies,” Google said.
On Wednesday, the Reserve Bank of India (RBI) announced the formation of a task force to suggest regulatory measures to promote the orderly growth of digital lending amid rising incidents of harassment related to online lending.
Reserve Bank establishes working group on digital lending, including lending through online platforms and mobile apps https://t.co/Ylnv4RoHE4
– ReserveBankOfIndia (@RBI) January 13, 2021
The app lending scam, which only emerged recently, has been taking place in India for at least a few years, but has gained popularity due to the financial crisis induced by the lockdowns.
Many people who lost their jobs and were in urgent need of money turned to these apps that promised instant loans credited to their accounts without any credit score checks or checks.
All users were asked to upload a copy of their Aadhaar map and PAN map, which they said was for verification purposes.
After the loan was approved, an amount was credited to the account after deducting processing fees and GST.
Largest Truebalance scam app. 37k approved amount but 28k credited amount! No proper information on number of months or days loaned! @mkvbalu @Pravinkks @cpcybd @gurgaonpolice pic.twitter.com/DH9MHG2qri
– Akhilesh Iyer (@Akhileshiyerr) January 9, 2021
As these are short term loans, borrowers were expected to start repaying within a week.
Many victims who have now spoken out said they started receiving calls from loan providers on the sixth day.
They also said that if the borrower did not repay the loan on time, the vendors would start harassing them, including making phone calls and WhatsApp messages to their friends, family and colleagues.