Problem of Unregulated Loan Apps in India
Context:
- The digital economy in India has grown dramatically in the last few years in every aspect. Accompanying this is an explosion of digital lending apps that prey on the digitally weak by employing dishonest means.
How do these applications work?
- These dishonest individuals typically prey on the less astute individuals in the lower and middle income brackets, such as students and store owners in smaller cities around the nation.
- Despite a person’s low credit score, these fake lending applications saturate social media channels with advertisements offering loans.
- The agents want far more money in return even though the advertised interest rates are minimal and often serve as a temptation; in one instance, the sum demanded was more than three times the amount borrowed.
- Policymakers have finally taken notice of this issue after many people were put in their sights.
Government agencies and regulators took the following actions:
- An RBI working panel had recommended in August 2022 to establish an impartial organisation to certify digital lending applications.
- The Ministry of Electronics and Information Technology (MeitY) will make sure that only these apps are hosted on the app stores. The central bank will create a white list of legal lending apps, according to a meeting on illegal lending apps that was presided over by the finance minister in September 2022.
- During the most recent meeting, which took place on October 13, MeitY proposed KYC guidelines for lending apps.
- Tech platforms have a part to play since social media platforms are used for the promotion and distribution of these apps.
- Numerous such apps have been blocked by Apple and Google. For example, Apple removed websites offering rapid loans from a platform named Trust Loans, such as Cute Sweet Food Record and Kevin Basketball Train Plan.
Controlling difficulties:
- Fraudsters frequently devise clever strategies to re-enter the internet.
- They have occasionally pretended to be loan aggregators or calculators in order to trick the evaluation procedures.
- It is alluring to have the assurance of quicker and simpler access to affordable loans.
- Particularly for people with poor credit scores and those who are less well-off.
- If not closely supervised, this, along with low levels of financial knowledge, sets the conditions for fraudulent conduct.
How can these lending apps be managed?
Implementing Policies:
- To guarantee that loan apps meet stringent compliance criteria, such as data privacy protection, transparent terms and conditions, fair lending practices, and efficient grievance redressal processes, it is imperative to fortify the regulatory framework that governs them.
- Establish Licencing Requirements: Require licencing for all lending apps that operate in India, subject to a strict examination of their compliance with rules, financial stability, and business practices.
- Establish App Store Controls: Work with app stores such as Google Play and the Apple App Store to establish more stringent procedures for lending app approval and screening, making sure that they adhere to legal requirements and consumer protection policies.
Customer Instruction:
- Public Awareness Campaigns: Hold campaigns to warn the public about the dangers of fraudulent loan applications, stressing the need to confirm the legitimacy of the app, thoroughly review the terms and conditions, and use caution when disclosing personal information.
- Financial Literacy Programmes: Put in place financial literacy initiatives to provide customers the information and abilities they need to identify warning signs, protect themselves against scams, and make wise decisions about online loans.
- Targeted Outreach to Vulnerable Groups: Reach out to vulnerable populations, such as the elderly and low-income people, with specific financial education and advice to prevent them from becoming victims of phoney loan applications.
Technological Progress:
- Create Fraud Detection Systems: Make an investment in the creation of sophisticated fraud detection systems that are able to recognise and flag questionable activity pertaining to lending apps, allowing for prompt action to stop fraud.
- Make Use of Data Analytics: Regulators and law enforcement organisations can proactively detect and target possible scams by using data analytics to uncover patterns and trends linked to fraudulent lending apps.
- Examine Blockchain Technology: Examine how blockchain technology might improve the loan app ecosystem’s traceability and transparency, which will lessen fraud opportunities and make it possible to conduct efficient fraud investigations.
Extra Actions:
- Create a Dedicated Task Force: To coordinate efforts against fraudulent lending apps, create a dedicated task force with members from consumer protection organisations, regulatory agencies, law enforcement, and technological specialists.
- Encourage Cross-Border Cooperation: Work together with global regulatory and law enforcement organisations to exchange information, find fraudsters, and obstruct their cross-border operations.
- Equip Customers with Reporting Tools: Give customers simple, efficient ways to report phoney loan applications so that the appropriate authorities may take swift action and look into the matter.
- In conclusion, the government and central bank need to take the initiative to deal forcefully with fraudulent operations while also raising awareness through increased financial literacy.
