How to know if a digital lending platform is fake

In a recent speech, Prime Minister Narendra Modi lauded the contribution of Indian fintech players to India’s economy. He focused on the fact that 40% of the world’s digital transactions are taking place in India, emphasizing the growth of the industry and its inclusivity. While there has been an increase in the number of customers transacting through digital platforms, we are also seeing a rise in fake lending platforms which are maligning the image of the digital loan industry.

Here are some measures that users can take to ensure that they are transacting with a genuine digital lender:

Inconsistent addresses: According to a report by the Reserve Bank of India (RBI) working group on digital loans, “There are 600 ‘illegal loan apps’ across multiple app stores for Android users in India.” A loan applicant, therefore, before downloading, must first verify the name of the app, its rating, reviews on the App Store, etc.

Users should do due diligence before applying for a loan and try to find the details of the company operating the app – whether its website, contact details, physical office address in India and the lender through the app Details of lenders. For physical addresses, rogue apps may refer to incomplete/incompatible addresses. One such app had given a fake address in which the name of the government authority BIADA in Bihar and a road in China was written. Hence, a basic careful check of notifications can, at times, make rogue apps go away.

NBFC websites: It is important to check the names of the lending institutions linked to the app (as per the recent Google policy, it is mandatory for lending apps to mention the names of all registered NBFCs and banks associated with it), and loans Tenure (Most play stores do not allow short term personal loans). Further, as per RBI guidelines on Digital Lending Platforms dated June 24, 2020, it is mandatory for NBFCs to list the names of Digital Lending Platforms/Apps on their website.

It has been observed that many rogue apps falsify their association with licensed NBFCs. Therefore, one should always check the ‘Partner’ section on the website of the concerned NBFC to verify all the necessary details of their authorized digital platform providers. One should be wary of lending apps that are not listed on the lender’s website.

App Permissions: One of the major concerns raised by illegal apps is the collection of data by fraudulently taking various permissions from a user and subsequently misusing it. The Apps have the right to collect only the minimum necessary personal data after indicating the use of each data/access permission thus obtained.

Loan Documents: As per the guidelines on Fair Practices Code laid down by the Reserve Bank of India, a lender should disclose necessary information (which affects the interest of the borrower) in a transparent and advance manner so that the borrower can take an informed decision. Most of the time, fake apps either do not provide loan documents or fail to provide the required information as mandated by RBI. A user should always insist on the loan agreement while applying for a loan even from a digital lending app and verify that the loan agreement includes the name of the actual lender, processing fee, annual interest rate, penalty, repayment schedule etc. has been disclosed.

RBI has repeatedly cautioned people not to fall prey to unscrupulous apps and verify the history of the lending company/entity online or through mobile apps. In addition, it has provided ‘Sachet’, a dedicated portal for reporting rogue apps.

It also underscores the importance of credible and effective Industry Associations/Self-Regulatory Organizations (SROs) covering the participants in the ecosystem. In the near future, these associations and SROs will play a vital role in tackling the issue of illegal apps, thereby increasing awareness among customers and enabling them to make informed choices.

Rohit Srivastava is Group Head – Legal, Compliance & Regulatory Affairs, Balance Hero India

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