How the RBI is making digital lending safer and more convenient for consumers
More and more consumers in India are increasingly turning to digital to navigate their personal finance. This can be attributed to the long-standing tendency among traditional financial institutions to exclude a large part of the consumer segment from availing of their service as well as dissatisfaction with the quality of services provided by these institutions. However, this surge of demand has led to the mushrooming of digital lending, widening concerns around unscrupulous practices within these companies, including unethical loan recovery processes and exorbitantly high-interest rates.
In light of this, the RBI came up with digital lending guidelines that players are mandated to comply with, with the aim to protect the interest of consumers. This has prompted players to rethink and strengthen practices to be more compliant with the new guidelines, heralding much-needed shifts in the finance ecosystem. These shifts are expected to make systems more transparent and secure for millions of discerning consumers across the country.
Let us take you through the different ways in which your digital banking experience will evolve as a result of this. This will also lend you an understanding of your rights as a consumer.
Complete control of your data
In the current landscape, we are always being asked to share key personal information with digital platforms to avail of their services. This makes the privacy and protection of our data one of the primary concerns. The new digital guidelines address this burgeoning issue by laying down that the use of user information should be time bound and need-based. This means that fintech and banking players cannot continue to store your information for long periods of time (data retention), limiting access to user files, contact lists, media, call logs, and other telephonic functions.
They will still have the requisite one-time access to the customer’s camera and microphone to successfully carry out the KYC procedures. Even so, this can only be done following the explicit consent of the user. Users are now given the right to restrict certain disclosures. Additionally, the guideline also states that the user has the option to restrict certain disclosure or revoke their consent if they so feel.
Direct handling and grievance redressal
The digital lending guidelines also lay down that any banking or non-banking financial company that falls under the aegis of the RBI (Regulated Entity) will now have to eliminate the use of any third-party intermediaries or pool accounts for all digital transactions. This means the same has to be executed directly between the financial institutions and the borrower. Additionally, each fintech firm or Lending Service Provider is mandated to have in place a grievance redressal officer.
This person will be the point of contact for customers to address all queries and complaints being faced by customers. It is also a mandate that the contact details of the grievance redressal officer be displayed on the official website of the regulated entity.
Exit loans as you, please
The central bank has made things even more customer-centric by allowing customers to opt out of their availed digital loan when they see fit. This will enable the customer to pay off the principal and proportionate Annual Percentage Rate (APR). Additionally, if they opt to do it within a stipulated time also known as the cooling off period, they can do so without having to pay foreclosure fines.
The cooling-off time will be set by the Regulated Entities. For the borrowers that continue following this period, the provisions of pre-payment will be determined by RBI guidelines.
