India’s central bank has issued new guidelines designed to add oversight to digital lending apps and the lenders who work with them.
According to a Wednesday (Aug. 10) announcement from the Reserve Bank of India (RBI), the rules say that only regulated financial institutions (FIs) will be able to issue and collect loan repayments, a job that will not be up to third parties.
“All loan disbursals and repayments are required to be executed only between the bank accounts of [the] borrower and the regulated entity without any passthrough/pool account of the lending service providers or any third party,” the announcement stated.
Additionally, fees paid to apps will now be covered by the lender, with no burden placed on borrowers, according to the announcement.
Meanwhile, the bank addressed concerns about data collection, saying in the announcement that data collected by digital lending apps “should be need-based, should have clear audit trails and should be only done with prior explicit consent of the borrower.”
The new guidelines also bar lenders from making automatic credit limit increases without the borrower’s permission. And lenders must clearly communicate interest rates and other charges to the borrowers, according to the announcement.
Earlier this year, RBI warned FinTechs in India that nonbank issuers of prepaid payment instruments (PPIs) can’t load cards and digital wallets with funds through credit lines.
Read more: RBI Tells FinTechs Non-Banks Can’t Reload Funds to Prepaid Wallets, Cards
“The PPI- master direction does not permit loading of PPIs from credit lines,” the banks said in June. “Such practice, if followed, should be stopped immediately. Any non-compliance in this regard may attract penal action under provisions contained in the Payment and Settlement Systems Act, 2007.”
This move came in response to a growing number of complaints against digital lenders in India. RBI officials have promised in the past a broad regulatory framework to deal with issues regarding digital lending.